IBM has announced it will pay $1.5 billion to Globalfoundries in order to shed its costly chip division.
Handing over control of the semiconductor operations will let the company grow faster as it continues to invest in and expand its chip research, said IBM Director of Research John E. Kelly III in an interview this weekend.
IBM will make payments to the chipmaker until 2017, but it took a $4.7 billion charge for the third quarter when it reported earnings Monday, according to the Associated Press.
"They need to narrow their focus, get their A-game on, and any distractions from a core business perspective, such as this deal, need to be put in the rear-view mirror," FBR Capital Markets analyst Daniel Ives said to Reuters.
"From an IBM and investor perspective, it takes one troubled area out of the core franchise," he added.
The company fell well short of Wall Street profit expectations and its revenue slid 4 percent, sending shares down 8 percent before the opening bell.
IBM isn't alone however, as Microsoft Corp., Intel Corp. and Cisco are all moving lower than expected.
Globalfoundries will get IBM's global commercial semiconductor technology business, including intellectual property and technologies related to IBM Microelectronics. It will also get IBM's semiconductor manufacturing operations and plants in East Fishkill, New York and Essex Junction, Vermont.
Access to thousands of patents and IBM's commercial microelectronics business will also go to Globalfoundries, according to the Associated Press. The company has plans to employ substantially all IBM workers at the East Fishkill and Essex Junction plants, except for a team of semiconductor server group employees who will stay with IBM.
Globalfoundries will become IBM's exclusive server processor semiconductor technology provider for 22 nanometer (nm), 14nm and 10nm semiconductors over the course of the next 10 years, according to the agreement.
Handing over the chip division will let IBM concentrate on fundamental semiconductor research and the development of future cloud, mobile, big data analytics, and secure transaction-optimized systems, according to the AP.
The transaction is expected to be finalized in 2015.
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