McQuiston: GlobalFoundries

Oct 31, 2014

IBM has been one of the most important companies to ever establish an operation in Vermont. And barring regulatory problems, it will leave Vermont by the middle of next year.

Is this the worst-case scenario, the best-case scenario, or something else? The recent acquisition by GlobalFoundries of IBM’s semiconductor business, including the Essex Junction chip plant, begs this question.

IBM not only gave away the Vermont plant and the newer one in East Fishkill, New York, as part of this transaction, it gave GlobalFoundries the patents, the people and an astonishing 1.5 billion dollars. GlobalFoundries, based in California, recently built a state-of-the-art chip manufacturing plant in Malta, New York, equidistant between the two IBM plants.

IBM was losing big money on its semiconductor unit and unlike GlobalFoundries, which is the second largest chip manufacturer in the world, IBM does many other things and is no longer a major player in the chip world. IBM Burlington has a nice business going making cell phone chips and short-run chips, including US Department of Defense work. The Vermont plant is essentially paid for, so it’s relatively cheap to operate.

In the short run, GlobalFoundries will need to keep the Vermont plant running. First, there are contracts to fulfill. Second, the Vermont plant has been designated a “Trusted Foundry” by the United States government. Third, and do not underestimate this aspect of it, Vermont has two US Senators, who can either be happy about what happens, or angry.

Even if the Democrats lose the Senate this year, Vermont’s Patrick Leahy is still in a powerful position, and has been a major benefactor of IBM.

GlobalFoundries is a privately held company that's owned by a company that's owned by the Emirate of Abu Dhabi. The secure federal contracts must be done by American companies. Leahy can help influence whether GlobalFoundries is regarded as American enough.

GlobalFoundries has said it plans to keep the Vermont plant and the roughly 4,000 workers who are here for the near future. In the unpredictable high-tech world it won’t commit to how long that future might last. The true test of GlobalFoundries’ commitment to Vermont will be whether or not it chooses to invest here.

Clearly this transaction is not the worst-case scenario. IBM could have just decided to shutter the place and then dealt with the cost and the legal blowback.

But that, despite recent cynicism, is not the IBM ethos. When IBM came up with the idea of using semiconductors for memory in the 1960s, it chose Vermont to make and further develop the new product. The Vermont plant peaked in the early 1990s and it became “The Memory Capital of the World.”

Maybe Vermont will become the “Something Else Capital of the World,” or maybe not. The semiconductor industry will evolve and this plant in its current form will eventually close and itself become a memory.

But not yet.