A host of Vermont political leaders and members of the business community are celebrating an announcement Monday that will see the IBM microchip manufacturing plant in Essex Junction continue to operate, with a new name on the sign.
GlobalFoundries will acquire IBM chipmaking assets as Big Blue turns its attention to other areas of focus, including cloud computing and data analytics, the companies announced.
But the move came as IBM was getting hammered by Wall Street for falling far short of investors' profit expectation. Shares fell 7.1 percent Monday after "Big Blue" profits came in more than 15 percent below analysts' consensus estimates. IBM has now racked up 10 straight quarters of falling top-line sales, and its gross revenues for the quarter that ended Sept. 30 were a full $1 billion below analysts' forecasts.
Rather than getting paid, IBM is actually paying Global Foundries $1.5 billion to take over the money-losing Vermont plant and a second semiconductor manufacturing plant in Hudson Valley, New York, and agreeing to buy the plants' output for IBM equipment over the next 10 years. GlobalFoundries is a semiconductor manufacturer based in California's Silicon Valley and largely bankrolled by a development company launched by the government of Abu Dhabi in the United Arab Emirates.
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For Vermont leaders, however, it was a relief to learn the IBM plant – once the biggest employer in the state – won't be shut down outright.
"I'm optimistic about our future," said Gov. Peter Shumlin, D-Vt., reaching for his smartphone in his pocket and showing it to reporters. "You can't possibly buy a decent gadget like this without having at least one and sometimes eight or nine chips made right here in Vermont."
GlobalFoundries will get access to IBM's engineers and valuable intellectual property under the deal, which still needs U.S. antitrust approval.
Shumlin said in a Monday morning news conference that he expects the more than 4,000 good-paying jobs at the Vermont plant to stay, perhaps even grow in number. Help wanted signs are currently hanging outside the plant.
"I'd like to see it succeed," said longtime plant employee Earl Mongeon. "To keep good jobs here in Vermont."
Monday afternoon, Gov. Shumlin released the following statement following a meeting with GlobalFoundries and IBM:
"This afternoon I had the opportunity to meet with Dr. Sanjay Jha, CEO of GlobalFoundries, and Dr. John Kelly, III, Sr. Vice President and Research Director for IBM, who were on their way to address the innovative and hardworking employees at the plant. We had a very productive meeting. I reiterated my Administration's commitment to working closely with the companies to maximize Vermont's opportunities as they make this transition. I learned that Dr. Jha is excited about Vermont and this opportunity for his GlobalFoundries. There is far more demand than supply for the specialized chips made by this fab, and GlobalFoundries is eager to use this strategic acquisition to grow its business with a tremendous workforce deeply rooted right here in Vermont. I assured Dr. Jha that Vermonters are united in our resolve to be great partners in this next phase of chip production and development here."
Essex Junction has been proud to host IBM and its innovators since 1957. At one point in time, the plant was Vermont's largest private employer, with more than 8,000 workers. As the business has changed, so has the workforce total. It's now around 4,000.
"It's possible under different ownership with a different structure, they'll turn that around," said Allison Kingsley, a professor of corporate strategy at the University of Vermont School of Business Administration, referring to workforce declines at the Essex chipmaking facility and losses in IBM's chip division.
Kingsley said GlobalFoundries is getting highly desirable assets in the transaction, namely IBM's engineering brainpower and intellectual property. She said the company's workers are regarded as among the best in the world, but did point out that the microchip business is a challenging one to be in.
"I think there's a lot of skepticism about whether this kind of high-tech manufacturing facility will be able to compete against global competitors which have much, much lower cost structures," Kingsley told New England Cable News.
Asked by NECN if he will seek any remedies or protections for the state, should GlobalFoundries' long-term commitment to Vermont change, Gov. Shumlin said, "We should feel comfort that we have a company committed to the business we happen to be in here... I think we have the formal assurance in respect that they're investing a lot of resources, energy, to build the businesses IBM has been running a long time."
Republicans, including Lt. Gov. Phil Scott, R-Vt., said Vermont has to do more to create a business climate that fosters the growth of major employers like GlobalFoundries.
For IBM as a company, pressure is mounting on CEO Ginny Rometty to speed up its growth in areas like “cloud-based” Internet services, security, and wireless networking, improve the profitability of its technology consulting services, and move faster to get out of less profitable business lines including server computers and other devices.
"Our third quarter was a disappointment ... make no mistake, and I don't minimize that," Rometty said in an interview on NECN's sister network, CNBC. The company also has finally abandoned its longstanding goal of returning to $20 of profit per share in 2015, and is reevaluating what it can realistically promise investors. Rometty, however, stressed Big Blue isn't slipping in its commitment to "prioritize the importance of dividend and share repurchase for really returning value to our shareholders."