IBM’s declining presence in the chip business
The rising cost of manufacturing chips caused a decline in IBM’s (IBM) volume base. It forced the company to divest the business. Earlier, IBM’s power chips were used by leading game console manufacturers like Sony (or SNE), Nintendo, and Microsoft (MSFT).
However, Advanced Micro Devices AMD (AMD) chips quickly took up this space. AMD chips are inside Sony’s PlayStation 4 and Microsoft’s Xbox One. This caused IBM to think about its strategy. It had to decide whether to stay in the business or move on.
IBM’s strategic steps to divest manufacturing operations
In 2013, IBM joined OpenPOWER Foundation. It’s a consortium developed by Google (GOOGL), Tyan, nVidia, and Mellanox. Along with IBM, they developed power chips for server applications.
In 2014, IBM lost its lead position in the server market to HP (HPQ). IBM has been divesting its hardware operations. IBM sold its PC business and x86 servers to Lenovo for $1.25 billion and $2.1 billion in 2005 and 2014, respectively. It also sold its hard-drive business to Hitachi for $2.05 billion in 2002.
With the sale of its chip-making operations, IBM can focus on “Watson.” Watson is a cognitive computing system. It was developed by IBM. Watson relies on the company’s software expertise. It’s used in healthcare. It could expand to manufacturing and retail as well.
To learn more about Watson and its potential impact on the company, please read Market Realist’s series “Must-know: Why IBM Watson’s timing is opportune.”