Tag Archives: Bloomberg News

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 And now that Globafoundries has withdrawn from the bidding, IBM is desperate to unload the division: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.

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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.