GlobalFoundries Inc. files multi billion dollar lawsuit against IBM

GlobalFoundries Inc. has asked a judge to rule that it isn’t in debt of 2.5 billion dollars to International Business Machines Corp over a deal in 2014 that the semiconductor maker accepted to the unprofitable chip manufacturing unit off IBM’s hands.

In a complaint filed on Monday in the New York Supreme Court, GlobalFoundries is seeking a declaratory judgment that it did not violate the agreement and stated that IBM is threatening to sue them.

The suit was filed as GlobalFoundries work with banks on an initial public offering that could value the chipmaker at about $30 billion.

“This action arises out of a misguided and ill-conceived effort by IBM’s law department to try and extract an outlandish payment,” GlobalFoundries stated in its complaint.

IBM in 2014 agreed to pay GlobalFoundries $1.5 billion to GlobalFoundries to buy the unit. As a part of the deal, GlobalFoundries became IBM’s exclusive provider of specific power processors for the next ten years in exchange for access to IBM’s intellectual property. GlobalFoundries acquired manufacturing facilities in New York, East Fishkill, and Essex Junction, Vermont.

GlobalFoundries is backed by an Abu Dhabi sovereign fund named Mubadala Investment Co. The chipmaker is coming to market because of the numerous industry complaints stating they can’t get enough semiconductor supply—governments across the globe gear up to provide financial support for expansions in production.

‘Highly Suspect’ In its lawsuit, GlobalFoundries stated that IBM’s request for damages is “highly suspect” as it follows news of the potential IPO. GlobalFoundries also noted that IBM “is yet to provide any substantive explanation” to its claims over the claimed breach.

GlobalFoundries said in their lawsuit that it invested billions of dollars in developing cutting-edge chip-making technology but also decided not to pursue IBM’s “failing strategy” and also notified IBM in 2018.

According to the filing, the chip technology development was more challenging and expensive than it was initially anticipated, which caused delays in the project’s targeted milestones. GlobalFoundries says it spent more money to catch up but still fell behind competitors, including Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co.

It also alleges IBM was “well aware” of delays and the switch to Samsung was beneficial for the company as it was cheaper and faster than GlobalFoundries would have been able to deliver.

The company didn’t complain about GlobalFoundries’ actions until news of its potential IPO broke, and it now seeks “a quick payday,” GlobalFoundries alleges.
The case is GlobalFoundries v. IBM, New York Supreme Court, New York County.

Semiconductor manufacturers GlobalFoundries on Monday sued International Business Machines Corp (IBM.N), asking a judge to rule that it did not breach a contract with the U.S based company, which claims it is to be paid $2.5 billion in damages.

The company has accused GlobalFoundries, owned by Abu Dhabi’s state-owned fund Mubadala, of having failed in making chips for the firm, according to a filing by GlobalFoundries with the state court in New York.

GlobalFoundries purchased IBM’s semiconductor plants in 2014 when IBM decided to exit the business of manufacturing its chips. But it quit pursuing advanced chip-making technology in 2018 due to the high development costs, and IBM turned to Samsung Electronics Co Ltd (005930.KS) to manufacture its chips.

IBM “went silent for almost two-and-a-half years” after the changes in 2018, but then in 2021 April sent GlobalFoundries a letter alleging that the chipmaker had violated its contract,” the filing stated.

“Other than the threats to sue unless it capitulated to its demands, IBM is yet to provide any substantive explanation for its claims,” GlobalFoundries noted in the suit.

The company stated that it believes that GlobalFoundries did not fulfil its responsibilities under the contract.

“IBM contributed $1.5 billion to Global Foundries to supply the next generation of chips, and Global Foundries utterly abandoned IBM as soon as the final payment was received and sold off assets from the deal for its enrichment,” IBM said.

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