Category Archives: IBM

Is there a fight brewing over the Enterprise Fund?

Earlier today, VTDigger broke the news that the state Emergency Board (four top lawmakers plus the Governor) had met on very (VERY) short notice to approve two state grants from the Enterprise Fund: $1 million to GlobalFoundries and $200,000 to BHS Composites. And I commented that this is the kind of thing that makes some see the Governor as a slippery dealmaker.

Well, here’s something you didn’t know. TheVPO has learned, as they say, that 50 state lawmakers wrote a letter to the Emergency Board asking it to postpone action on the grants.

The plea fell mostly on deaf ears, as the Board approved the grant on a 3-1 vote.

One of the letter’s signatories was Rep. Chris Pearson (P-Burlington). Via email, he explained the reasoning:

It was my hope that we could consider using the money to help fill the [FY 2017] budget gap or, more urgently, the [FY 2016] budget adjustment challenge.

The letter was written before the EB’s agenda had been publicly warned — which happened only yesterday afternoon. Pearson adds:

Now that it’s clear the money was for Global Foundries it’s puzzling how a company that was given $1.4 billion to take over the plant could find $1 million much of a game changer.

You and me both, but more on that in a moment. First, the political ramifications of this letter.

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Here we go again

When IBM paid GlobalFoundries $1.5 billion to take its chip-making operations off its hands, including the Essex Junction facility, Vermont breathed a sigh of relief. All the drama, all the domestic cutbacks by IBM, the rumors, the questions… we could put all that to bed.

Right?

Not so much.

Multiple media reports say a state-owned Chinese chip manufacturer has been sniffing around. The Albany Times Union:

Anxious to grow its semiconductor industry and secure a stable supply of microchips for its high-tech economy, the Chinese government is reportedly looking into buying GlobalFoundries…

Mubadala Development Co., the Abu Dhabi government investment fund that owns GlobalFoundries, may be under increasing pressure to consider any offers for its chip-making unit as the plunge of global oil prices has put enormous pressure on the oil-rich emirate’s finances.

Hoo boy. Out of the frying pan.

Makes me wonder two things. First, was GF’s “purchase” of the IBM operation merely a cash grab? A large-scale industrial version of “Flip This House”? Second, all of GF’s assurances to Vermont officials are worth exactly the paper they were written on. Assuming they were ever written down in the first place.

If the GF transaction turned Essex Junction into a pawn in a global game, a Chinese takeover would turn Essex Junction into a zit on a mega-corporation’s ass. I mean, if you think the Chinese wouldn’t close Essex Junction in a heartbeat if they could save a nickel by moving the whole shebang to Shanghai, I’ve got a bridge in Brooklyn you might be interested in.

And it’d have nothing to do with Vermont. In the face of Chinese strategic considerations, our policies and “business climate” are insignificant. That wouldn’t stop Republicans and business types from slamming the Democrats, but it’d be pure substance-free political posturing.

This is far from a done deal. The Times Union says that even if a sale is agreed to, it’s certain to face opposition in Washington. Specifically, powerful New York Sen. Chuck Schumer “has vowed to block the sale of any U.S. technology companies to state-owned companies in China until the government opens up its markets to U.S. firms and stops stealing U.S. intellectual property.”

Which raises an interesting philosophical point. Since IBM dumped its chip business onto GlobalFoundries, is it a “U.S. technology company” anymore?

Well, that wouldn’t keep the politicians from making their hay with some juicy election-year China-bashing. They might even succeed in blocking a sale, or sufficiently fouling the waters that China decides it’s not worth the trouble.

But here’s the larger point. Even if China doesn’t buy, this certainly shines a new and unflattering light on GlobalFoundries as a “partner” to Vermont. To paraphrase the Psalmist, “Put not your trust in global corporations…”

Gee, Phil, are you running for something?

Bit of a dick move by professional Nice Guy, Lt. Gov. Phil Scott today. After IBM announced it was dumping its semiconductor business to GlobalFoundries, Governor Shumlin held a quick news conference.

Behind you, Peter!

Behind you, Peter!

And there, over Shumlin’s right shoulder, was Phil Scott, well within camera range.

I thought it was a little odd that the Governor would give him the spotlight, seeing as how he endorsed Dean Corren and all. Well, that endorsement was a long time ago, and the Governor hasn’t visibly done anything to expand on it. No joint appearances, no further kind words. No criticism of top Democrats like, say, John Campbell, who’ve gone out of their way to back Scott.

Well, how did Nice Guy repay the favor?

By subtly, but clearly, criticizing Shumlin Administration policy. VTDigger:

Lt. Gov. Phil Scott said Monday morning at the news conference that the sale clears the slate to change the way Vermont does business with large companies.

He stopped short of saying that the state could have done anything to prevent IBM’s exit, but he took the opportunity to say it can do more to work with GlobalFoundries.

“We need to establish policies that make the business climate more conductive to growth for large employers such as IBM,” Scott said.

Mighty white of him to stop short of blaming Shumlin for IBM’s departure. After all, he could have rolled out that old “Shumlin called an IBM lobbyist a liar eight years ago” canard. Instead, he slipped the knife, ever so slowly and ever so politely, into Shumlin’s back. After all, “make the business climate more conducive to growth” is a favored Republican dog whistle. And, as we all know, Vermont’s business climate had nothing whatsoever to do with IBM’s departure.

Next time, put Phil in the back of the room. Or leave him out in the car with the doors locked and the windows cracked. Wouldn’t want him to overheat.

The new boss can’t be as bad as the old boss, right? …Right?

Memory Lane, kids! On November 12, 2012, I wrote a piece on Green Mountain Daily entitled:

Expect IBM to leave Vermont within three years. No matter what we do.

And today comes the news that IBM is “selling” its semiconductor business, including its plant in Essex Junction, for negative $1.5 billion. Yep, it’s paying GlobalFoundries to take the business off its hands. IBM is, indeed, leaving Vermont.

Allow me a little tiny bit of gloating here. Mmmmm, ahhhh.

Okay, enough. Get on with it.

That GMD post was inspired by the work of technology journalist Robert X. Cringely, who’d reported that IBM was in an all-out blitz to shed domestic workforce and slash itself into profitability. My point was that if IBM left Vermont, it’d be because of global corporate strategy. Not because we didn’t build the Circ Highway or our electric rates were too high or then-Senate leader Peter Shumlin once called an IBM lobbyist a “liar.” (Which, Republicans, just stop. It happened years ago. And if a lobbyist and his employer takes lasting umbrage at an offhand comment during the heat of legislative debate, well, they’re just way too damn sensitive.)

So here we are, less than two years later, and IBM is on its way out.

My prediction was right on the facts — but wrong on the implication, that IBM’s Essex plant was a goner. Fortunately, GlobalFoundries sees potential in the plant and/or its skilled workforce. In the short run this is very good news, because the way things were going at IBM, it’s a relief not to have thousands of good jobs and the Chittenden County economy dependent on Big Blue.

However…

While GlobalFoundries is saying all the right things — it plans “to provide jobs for ‘substantially all’ IBM employees at both Essex Junction and East Fishkill who are part of the transferred business,” it assured Governor Shumlin that it “plans to continue employment, investment, and operations in Vermont,” and it told the Burlington Free Press that it is committed to Essex for the “foreseeable future” — this deal should not significantly reduce the concerns over the Essex plant’s future.

After all, it’s not like GlobalFoundries has a lot invested in Essex. It agreed to accept a boatload of money, plus the IBM chip business. And when you combine the GF and IBM capabilities, you’ve got two manufacturing plants in the Hudson River Valley — one of which is a brand-new $8 billion facility — and one up here in Essex. If there’s any consolidation in GF’s future, I’d have to guess it’ll lean to the south.

Aside from the fact that reassurances like these are routine, and worth approximately the toilet paper they’re written on, there are some obvious caveats in today’s crop.

GlobalFoundries says it “plans” to provide jobs for “substantially all” IBM employees at Essex “who are part of the transferred business.” That’s a lot of weasel words in a single sentence. “Plans” can change. “Substantially all” is a matter of definition. And how many in the Essex workforce are NOT “part of the transferred business”? Will they be cut by IBM? If given the opportunity to remain at IBM, will they have to relocate? After all, IBM won’t have a presence in Vermont anymore.

Governor Shumlin is meeting with GlobalFoundries officials later today. Color me cynical, but I’d expect GF to put the screws to the Governor. The corporation will provide generic promises and make very specific demands. And the Governor is in a weak bargaining position: he knows that the Essex plant means a lot more to Vermont than it does to its new owner.

"I have returned from GlobalFoundries with peace for our time."

“I have returned from GlobalFoundries with jobs for our time.”

He might even come out of the meeting with a piece of paper in hand, proclaiming a new deal that’s good for Vermont and for GlobalFoundries.

Not that I could blame him. We’re over a barrel with the Essex plant. Its closure would be a huge blow to our economy. In the short term, the IBM/GF deal is good for the state — if only because I’d hate to continue depending on the good graces of IBM. But a lot of uncertainty remains, and the moral of the story continues to be “don’t put all your eggs in one basket.”

I grew up in Michigan, a state that grew and prospered with the domestic auto industry. The Big Three had its roots in Detroit. It did a lot of good for Detroit. But when the global winds shifted, the automakers had to shift with the times, and Detroit was left to hang. The takeaway: it’s not healthy to be too dependent on one business or market sector. Sooner or later, it’s gonna bite you in the butt.

IBM’s departure is a stark reminder: Vermont’s economy should be as diversified as possible. Eventually the winds are going to shift again, and we need to be ready.

Essex Junction’s negative equity

Oh, here’s some good news on IBM’s facility in Essex, courtesy of Bloomberg. 

IBM was willing to pay Globalfoundries Inc. to take on IBM’s money-losing chip-manufacturing operations, according to a person familiar with the process.

IBM was offering about $1 billion to persuade Globalfoundries to take the unit, said the person, who asked not to be identified because the negotiations were private. Globalfoundries wanted to be paid about $2 billion, enough to offset the division’s losses, the person said.

Okay, first we’ll posit that IBM’s chip division includes other plants besides Essex, so we can’t blame that plant alone for IBM’s negative equity. But it is a stark reminder that Essex and IBM’s other chip operations are basically dead weight. And now that Globafoundries has withdrawn from the bidding, IBM is desperate to unload the division:

IBM’s willingness to pay underscores the urgency for Chief Executive Officer Ginni Rometty to get less profitable businesses off the books.

Rometty’s top priority is to reverse recent losses, and hit very ambitious earnings targets by 2015. Er, that’s five months from now.

To stay competitive in manufacturing, IBM may have to invest billions of dollars to keep its plants up to date with newer chip technology. IBM’s East Fishkill location cost $2.5 billion to build.

We’re talkin’ billions of losses and/or risky investments in a market that IBM has basically lost to Intel. When you compare that awful reality to Vermont’s potential offer of a few million bucks in incentives, you see the scope of the problem and the almost complete inability of li’l ol’ Vermont to make a difference. Somehow I don’t think resurrecting the Circumferential Highway or another cut in electricity rates will save this sinking ship. Nor would the more business-friendly “tone” that Scott Milne keeps promising. And it’s hard to see what the Shumlin Administration, or any other administration, could possibly do in the face of such dismal market realities.

This was predictable, and should not be mistaken for good news

In a classic late-Friday newsdump, “sources” have slipped word to Bloomberg News that an impasse has been reached in IBM’s negotiations to sell its chip manufacturing arm to Globalfoundries Inc. “Globalfoundries… made an offer that was rejected by IBM as too low,” says Bloomberg, which called the failure of the talks “a setback for IBM Chief Executive Officer Ginni Rometty.”

She’s been in a race to meet 2015 earnings goals at all costs — most notably, by cutting the workforce and shedding any units that can’t generate profits. The strategery being, I guess, “if we keep shrinking and shrinking, we’ll grow.”

Like diving into a black hole and coming out the other side, eh?

I can believe Globalfoundries was lowballing IBM, since the word all along was that GF was not interested in IBM’s physical plants (including Essex Junction), just its engineers and intellectual property. If GF didn’t want the big costly plants, of course it would undervalue the package.

And besides, if GF wants the engineers and the brains, it sure doesn’t need to buy ’em from IBM. It can just go ahead and recruit, which is exactly what it’s been doing. Paul “The Huntsman” Heintz:

Globalfoundries… has announced in recent weeks that it has hired several top employees from IBM’s Essex Junction and East Fishkill, N.Y., plants. The company has also placed employment ads in papers serving those regions — including the Burlington Free Press.

Any IBMers who want to continue their careers must realize that GF is a better bet than IBM. It means moving, which isn’t for everyone; but GF should be able to entice quite a few people. After all, IBM has become a spectacularly awful place to work — with the constant threat of layoffs and the ever-tightening pressure to produce, produce, produce.

Now, I’m sure there’s some “intellectual property” under IBM’s control that GF would like to have. But naturally it wouldn’t offer anywhere near the amount of money IBM wants. It doesn’t need to buy the IBM assets; it just needs to pilfer the brainpower. Which it should be able to do easily, since its “competition” is the doom chamber of IBM employment.

And as usual, IBM is leaving state and local officials completely in the dark. Get a load of this convoluted statement from Commerce Secretary Pat Moulton about the Bloomberg report:

“I don’t know what that means — whether that’s good news or bad news, but I have not heard anything officially or unofficially,” she said. “Obviously having a company remain here and remain viable is important, so it was hard to know what a Globalfoundries deal — if there was one on the table — would have meant.”

I call that a cotton-candy statement: a teaspoon of substance whipped into a furious froth of nothing. It’s also a measure of the value IBM places on its relationships in Vermont: zero. IBM’s been keeping us completely in the dark for years.

If Globalfoundries was truly uninterested in IBM’s physical plant, a purchase agreement would have been bad news for Vermont. But the collapse of the deal shouldn’t be taken as a good sign. IBM will be even more desperate to spin off the unit. Or simply wind it down. And would any other potential purchaser be interested in an Essex plant that GF “had placed little or no value on… because [it is] too old”?

Two and a half years ago on Green Mountain Daily, I wrote that we should be prepared for IBM’s exit from Vermont within three years. And that it wouldn’t be Governor Shumlin’s fault, at all; it’s a result of IBM’s short-sighted, profit-chasing binge of outsourcing, downsizing, and stock repurchasing. IBM’s domestic workforce has shrunk dramatically in the past decade, and is continuing to do so. Essex is a rubber ducky in the IBM bathtub, the plug has been pulled, and we’re all spinning the drain.

My three-year prophecy is likely to miss, but my larger point remains: don’t expect IBM to stick around much longer. And don’t blame Governor Shumlin when it leaves.

Oh Cioffi, don’t take your love to town

Welp, the Burlington area business community has, in the immortal words of Kenny Rogers, painted up its lips and rolled and curled its hair, and is clearly contemplating going out somewhere.

The occasion: the long-rumored, virtually inevitable, closure of IBM’s plant in Essex Junction. The response: Frank Cioffi, well-connected head of the Greater Burlington Industrial Corporation, has outlined a plan to entice IBM or its successor to please, please, please not leave Vermont. </a>

And while the Cioffi Plan doesn’t quite go so far as to offer free hookers ‘n blow, he does seem willing to put on a miniskirt and, ahem, bend over backwards to make our corporate overlords feel right at home. This, in spite of the obvious fact that nothing Vermont can do will change the course of events in Essex Junction. Decision-making at IBM and the rumored purchaser of its chip-making business, Globalfoundries, is taking place on a much broader stage than ours.

And sure, any corporate overlord would be happy to accept a handout (or a blowjob, metaphorically speaking), but it won’t extend the life of the plant by a single iota. It’ll just bleed the state’s treasury by a little but significant bit.

Now look, I’m not saying we shouldn’t try to keep the plant open and its roughly* 4000 jobs intact. But it’s not worth selling ourselves and creating a bad precedent for future corporate overlords if it won’t help.

*”Roughly” because IBM refuses to release employment numbers or layoff totals. It’s almost certainly a lot less than 4000 and dwindling, but who the hell knows. Nice corporate neighbor is IBM. 

The Cioffi Plan includes the usual bumpf. Using that prospective $4.5 million slush fund, approved by the Legislature but contingent on found money, to bribe induce IBM to stick around. Boosting workforce training programs, which is nice but the problem at Essex isn’t the workforce, which is excellent; it’s IBM’s infernal profit-seeking.  Establishing state and regional “action teams” (with Cioffi getting a big seat at the table) to, I guess, take action. Or at least talk about it.

Oh, and one curious item:

• Identify a “public entity buyer” for the IBM campus wastewater treatment facility and other campus infrastructure, using state and federal resources to acquire and subsidize operating costs, as the IBM infrastructure is “the most significant in our state.”

Hmm. Sounds like Cioffi wants to free IBM or its successor of infrastructure and waste-management responsibility for the plant — which is one goddamn huge item — and transfer it lock, stock, and leaky barrels to the public sector. I’d really like to see a price tag on that one. Do we, the people, also assume liability?

One thing Cioffi left off his laundry list was the cost of electricity. Perhaps that’s because Governor Shumlin already negotiated a price break for the plant. Still, it’s unlike our Business Whores to leave any favor unoffered.

Aside from the transfer of the “wastewater treatment facility and other campus infrastructure,” none of these ideas are particularly troubling. Or creative. Or anywhere near enough to influence a decision-making process that’s happening far away for reasons having nothing to do with Vermont’s  business-friendliness.

Indeed, Cioffi himself acknowledges that his big plan won’t help retain IBM.

Cioffi said that “regardless of what name is on the door of the IBM Vermont enterprise, we all must act immediately and convincingly to demonstrate our state’s commitment and our region’s commitment to the well-being of the IBM enterprise.”

In the words of another songwriter: Hey, Vermont, put on your red light, and get ready to sell your body to the night.

 

Ironic postscript. Why is it that the champions of free-market capitalism are always eager to give a publicly-funded advantage to selected enterprises? Shouldn’t the government stay out of the way and, as Mitt Romney put it, stop trying to pick winners and losers?