IBM likely to announce tomorrow it's paying Globalfoundries $1.5B to unload its chip unit

Earlier today, IBM put out a press release that it will be making a big announcement tomorrow morning before its quarterly earnings call, and it looks like the announcement is that it’s unloading an unprofitable chip unit.

According Bloomberg, IBM will announce tomorrow that it’s paying Globalfoundries $1.5 billion over three years to take its chip business off its hands. IBM will also receive $200 million in assets, for a net transaction of $1.3 billion, the report says.

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Globalfoundries is owned by an investment arm of the government of Abu Dhabi, and the 10-year partnership will enable it to tap into the chip unit’s engineering and industry expertise. As part of the deal, Globalfoundries will have access to IBM’s technology, and will in return supply the company with Power processors, which it needs for mainframe computers and its Watson technology, for example.

In short, this looks like a way for IBM to straighten out its finances. Although the chip unit only makes up two percent of IBM’s revenue, it looses about $1.5 billion per year, Bloomberg reported in June. IBM reportedly tried to previously strike this deal for $1 billion — too little for Globalfoundries — so the company eventually offered $1.5 billion. Globalfoundries has been part of an alliance with IBM and a spinoff from AMD since 2009.

For tomorrow’s quarterly earnings results, analysts expect $4.32 in EPS, and $23.36 billion in revenue.