IBM's Microchip Plant Not Measuring Up

IBM's new $3 billion microchip factory was supposed to bring the company efficiency and profit. Instead, it is giving the technology leader a headache. Demonstrating the risk of huge investments in advanced chip-making tools, International Business Machines Corp. on Wednesday cited production problems at the gleaming chip plant in East Fishkill, New York, as a reason why its microchip business would lose money this year.

IBM shares fell almost 5 percent Thursday, in part because of that disappointing disclosure in IBM's second-quarter earnings released on Wednesday evening. IBM met analyst profit expectations. In contrast to IBM, advanced chip equipment is easing the way for Intel Corp., the world's largest microchip maker, which this week raised its profit margin target for the year in part because of tools that produce chips with finer features on larger discs of silicon.

The disappointing start at the IBM plant is likely to reignite debate about whether IBM should be in the business of making semiconductors for other companies, Sanford C. Bernstein analyst Toni Sacconaghi said in a research note on Thursday. "The disappointment in microelectronics is a major executional blunder, and we can't help wonder why IBM did not have a better read on what its customers plans were, or why IBM has experienced a sudden contraction in orders while some other semi players have not," Sacconaghi wrote. He rates the stock "market perform."

News source: Reuters

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