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IBM to spend $300 million on Shanghai chip plant

As Big Blue looks to reverse ongoing chip-supply issues, the China factory, which will make chip packaging, is seen as one of several important steps.

IBM plans to invest $300 million to build a chip-manufacturing plant in Shanghai, China.

The Shanghai project is part of a $5 billion semiconductor investment plan at IBM.

That commitment came not a moment too soon and maybe just a little late, analysts say. The problem: chip foul-ups that prevented IBM from shipping as many servers as it could have sold in the third quarter.

"If they can't ship the chips that are used in...these servers, how does that start rippling through to software sales and hardware sales? That's what's really significant about this," said Technology Business Research analyst Bob Sutherland.

During the third quarter, IBM's mainframe and Unix server business posted disappointing results because chip shortages kept the company from meeting demand. John Joyce, IBM's chief financial officer, said the company could have added two more points to the quarter's revenue growth if not for the chip shortages.

Revenue from AS/400 servers, for example, declined 6 percent because of the problem.

The new factory, which will make chip packaging, is seen as one of several important steps, as IBM looks to reverse ongoing supply issues.

Recent organizational changes and the launch of the new eServer brand potentially mean stronger server demand, but IBM can't sell systems without the chips.

"I think you're going to see IBM stepping up to the plate," Sutherland said. "If they can't deliver on the demand that their sales force is going to create, that could spell more problems for IBM."

In the case of third-quarter shortages, IBM's problem had to do specifically with the ceramic casing used in the chips.

The Shanghai facility will produce electronic cards and chip carriers using surface laminar circuitry and HyperBGA packaging technology, the company said. The components will be used in wired and wireless networking products as well as Web servers, among other products.

"The establishment of the new packaging facility in Shanghai signifies a new phase in bringing advanced technology to China," Henry Chow, chief executive of IBM Greater China Group, said in a statement. "With the extensive partnerships, resources and customer relationships we already have, today's announcement is a further demonstration of IBM's commitment to contribute to the rapidly expanding IT infrastructure in China."