IBM Keeps Skin In The Hardware Game With $3B Investment In Chip R&D

IBM signaled to channel partners and industry watchers that it's still serious about its hardware business with a plan to spend $3 billion on chip R&D over the next five years.

"They are saying we are going to be in it and here's a serious coin on that," technology analyst and Endpoint Technologies Associates President Roger Kay told CRN.

Thursday's news may address some concerns that the company was perhaps exiting its hardware business after that segment recorded millions of dollars in red ink last year and then reached its agreement to sell the x86 server business to Lenovo. There's also chatter that the company is looking to sell its semiconductor factories to Santa Clara, Calif.-based chip maker GlobalFoundries.

[Related: 10 Reasons HP's IBM-Lenovo x86 Server Attack is Paying Off]

However, IBM CEO Virginia Rometty made clear that exiting hardware was not a part of the company's strategy in her annual letter to shareholders.

Tom Hughes, director of strategic alliances and technology solutions at Greenwood Village, Colo.-based Ciber, told CRN in an email that he found the news interesting and that it "shows their focus on core technology development."

IBM, which could not be immediately reached for comment, said in a release that the chip R&D spend would have two main focuses.

The first of those would be on research into the development of smaller chips measuring 7 nanometers or less.

"The question is not if we will introduce 7-nanometer technology into manufacturing, but rather how, when and at what cost?" IBM Research Senior Vice President John Kelly said in a statement. "IBM engineers and scientists, along with our partners, are well suited for this challenge and are already working on the materials science and device engineering required to meet the demands of the emerging system requirements for cloud, big data and cognitive systems. This new investment will ensure that we produce the necessary innovations to meet these challenges."

The other focus of the investment looks into alternative materials outside silicon for making chips. It's a necessary move given the complexities silicon presents as the industry looks to shrink chip sizes, while still maintaining low energy usage and high processing speeds.

The investment into chip development, which equates to about $600 million a year, is not in addition to IBM's overall R&D budget of about $6 billion annually, The Wall Street Journal reported.

Chip makers are in a race to successfully produce the next generation of chips and IBM's planned investment in R&D keeps its seat at the table, some say.

The number of players in the space have dwindled with the high costs associated with semiconductor factories that require robust earnings to support the kind of cash flow in the billions of dollars that such facilities require annually.

"The pile of chips on the table is huge and the risks are really high and IBM puts a card on the table like they just did, raising the stakes," Kay said. "They said, 'We're ready to go; we're ready to rumble.' With each round of cards, the risks and the stakes get higher. Somebody's going to blink, but it's hard to know who and when. This is just one more card being played."

PUBLISHED JULY 10, 2014