Applied Micro Buys IBM Chip Rights for $227M

Continuing to refine its business in a changing marketplace, IBM has announced it will sell rights to its PowerPC microprocessors to San Diego, California-based Applied Micro Circuits for US$227 million. The all-cash deal includes intellectual-property licenses as well as the rights to the IBM PowerPC 400 product line. Separately, the company announced an acquisition in the services sector.

Plans call for IBM to continue making the chips, which Applied Micro will have the right to modify and resell to communications product makers.

The move echoes similar agreements IBM has reached with Sony and L-3 Communications to open up its processor line to outside development and innovation. The deals serve as a way to boost what had become a lagging part of Big Blue’s overall business.

Chip Off the Block

Gartner analyst Martin Reynolds told the E-Commerce Times that IBM is seeking to use its wide-ranging business partnerships and relationships to boost its chip business, which increasingly relies on such customized agreements.

“IBM has trouble competing with Intel in the pure standard, volume-chip market, but if it can offer an open architecture that enables companies to build from the processor up, they can keep their chip business relevant,” Reynolds said. “These moves really boost the prospects that IBM chips will be in a lot of next-generation devices.”

He added that according to this business model, IBM essentially outsources development of chip features, turning over development and integration while keeping manufacturing responsibility and maintaining a stake in the intellectual property underlying the chips.

“They can keep their hands in chips and stay near the cutting edge this way without spending the billions every year that Intel and AMD have to spend to develop new technologies,” he said.

Shifting Sands

Even as it shed some responsibilities for its chip line, IBM acquired a London-based business continuity firm, saying the assets of Schlumberger Business Continuity Services will help Big Blue’s services unit provide a “one-stop shop” for disaster recovery, data backup and related security services.

Schlumberger operates some 40 data centers in Europe and the United States, providing backup data and computing centers for about 750 customers to ensure those customers’ operations run smoothly in the event of an emergency, such as a widespread power outage or natural disaster.

The data centers were considered nonessential to Schlumberger’s core business of providing support services to the oil industry.

Terms of the deal were not disclosed, but IBM said it intends to keep all of the data centers open and keep the firm’s 200-plus employees on the books for the time being.

Shopping Spree

IBM has been on a buying spree focused on smaller firms in recent months, scooping up what analysts say is complimentary technology that fits well with the overall trend toward outsourced IT departments and IBM’s big push for on-demand computing, which enables enterprises to buy flexible computing power on an as-needed basis.

For instance, IBM recently bought Trigo Technologies to beef up its middleware software line. Also, during 2003, Big Blue purchased three document management firms.