IBM 1999 Annual Report Download - page 83

notes to consolidated financial statements
International Business Machines Corporation
and Subsidiary Companies
R 1999 Actions
Technology Group Actions
During 1999, the company implemented actions that were
designed to better align the operations and cost structure of
IBM’s Technology Group with that group’s strategic direction
in view of the competitive environment, overcapacity in the
industry and resulting pricing pressures. The actions affect the
Microelectronics Division (MD), the Storage Systems Division
(SSD) and the Networking Hardware Division (NHD) of the
company’s Technology Group. The company expects these
actions to be substantially completed by the first half of 2000.
In total, the Technology Group actions resulted in a charge of
$1,690 million ($1,366 million after tax, or $.73 per diluted com-
mon share) as described below and in the table on page 82.
The actions within MD addressed a prolonged, industry-wide
downturn in memory chip prices that affected the results of the
company’s semiconductor business. They are intended to enable
the company to (1) reconfigure the assets and capabilities of
the division to allow more focus on the faster-growth, higher-
margin custom logic portion of the MD business and (2)
enhance its ability to more cost effectively manage a partner-
ship agreement that was formed to produce complementary
metal oxide semiconductor (CMOS) based logic components.
The company will reduce its internal dynamic random access
memory (DRAM) capacity by converting its manufacturing facility
in Essonnes, France, from DRAM to custom logic over an 18-
month period. The company is effecting that conversion through
a joint venture with Infineon Technologies, a subsidiary of
Siemens AG. Also related to DRAM, the company executed con-
tracts with various banks and other financing institutions to sell
and lease back test equipment.
The company also participates in a 50/ 50 joint venture (Dominion
Semiconductor Company) with Toshiba Corporation to produce
DRAM memory components. The company entered into an
agreement whereby Toshiba will assume the company’s interest
in Dominion effective December 31, 2000. The company will
participate in the capacity output of Dominion at a significantly
reduced rate in the interim period.
The company held a majority interest in a joint venture (MiCRUS)
with Cirrus Logic Inc. (the partner) to produce CMOS-based
logic components for IBM and its partner based on contractual
capacity agreements. The partner indicated that it would not
require the output capacity that is provided for in the partnership
agreement. The company determined that the most cost-
effective manner in which to address the partner’s desire to exit
the partnership agreement was to acquire the minority interest
held by that partner.
The company also announced aggressive steps intended to
improve its competitive position in the markets that SSD serves
by merging server hard disk drive (HDD) product lines and
realigning operations. The company is integrating all server
HDDs into a single low-cost design platform that uses common
development and manufacturing processes. The company con-
tinues to transfer manufacturing assembly and test operations
to Hungary and Mexico and expects to complete these actions
by mid 2000.
The actions within NHD relate to a global alliance with Cisco
Systems, Inc. As a result of the announcement of the alliance,
demand for the router and switch products from both existing
and new customers deteriorated.
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