IBM is paying Abu Dhabi owned GlobalFoundries $1.5 billion to entice it to acquire IBM’s chip manufacturing division. Yes, that’s right—paying $1.5 billion. So how does IBM make money on deals like this? Volume!
IBM has agreed to pay $1.5bn as part of a deal to shed its lossmaking chip manufacturing arm and avoid the billions of dollars in capital spending it was facing to upgrade its manufacturing technology.
To be clear, it’s not like IBM can’t afford the billions of dollars in capital spending necessary to make its chip manufacturing competitive. The company made $18 billion in profits last year. And it would have reported a $4.7 billion profit this quarter (up from $4 billion in the year ago quarter) had it not been for the $4.7 billion pre-tax charge it took to write off its chip foundry business.
So what is IBM doing with all its money? IBM shareholders will receive roughly $4.5 billion in dividends this year. Meanwhile, the company continues to prop up its share price with stock buybacks—$3.7 billion worth this year, and over $50 billion since 2010.
Yet investing in, you know, making stuff, that’s something that IBM executives can’t be bothered to do.
Next time a righty tells you that we need to cut taxes on corporations and the wealthy so that they can accumulate the capital necessary to invest in creating jobs, send them a link to this.