International Business Machines Corp. will sell its half of Manassas chipmaking venture Dominion Semiconductor LLC to its partner, Toshiba Corp., a U.S. unit of the Japanese company said today.
Toshiba America Electronic Components Inc. said it will buy IBM's share of Dominion, a joint venture the two companies established in 1996.
Details of the purchase agreement were not disclosed, but the Nihon Keizai Shimbun (Nikkei), quoting Toshiba sources, reported earlier that Toshiba would pay about 20 billion to 30 billion yen, or $165 million to $250 million, to buy out IBM's share of the venture, which produces DRAM (dynamic random access memory) chips.
The current production at the plant is equivalent to 4 million 64-megabyte chips per month, with a scheduled increase to 6 million chips per month by the end of this year.
Beginning immediately, capacity belonging to Toshiba will gradually be increased to 75 percent from the current 50 percent share, Toshiba said. That will increase to 100 percent by the end of next year, the company said.
The sale, expected to be completed by the end of next year, would not eliminate IBM from the DRAM business, as Armonk, N.Y.-based IBM has DRAM production operations in several locations worldwide.
Industry sources noted, however, that the sale would mesh with IBM Chairman Louis Gerstner's oft-repeated goal of backing away from the low-profit-margin DRAM business to focus on more sophisticated and more profitable semiconductor categories.
"The message from Lou Gerstner was quite clear at IBM's meeting with analysts in May, where he said in so many words they were going to let that part of the business fade away," said Bill Milton, an analyst at Brown Brothers Harriman.
Typical of the kind of business IBM has aggressively sought was a $1 billion multiyear deal announced in May to build custom chips for Nintendo Co. game systems.
A steep decline in DRAM prices in recent years has led to a consolidation in the industry, and some companies have reconsidered whether they want to be in the business at all.
Texas Instruments Inc. quit DRAM production in 1998, selling that part of its business to Micron Technology Inc., the leading U.S. producer of such chips.
South Korea's Hyundai Group agreed in April to buy LG Semicon Co., a deal that would create the world's second-largest maker of memory chips, slipping just ahead of Micron, the current No. 2, behind only Samsung Electronics Co.