IBM has reportedly hit its first major bump on the road to rid itself of the low-margin chip business after long-time supplier Globalfoundries Inc. refused a $1 billion offer to take over its struggling semiconductor operations. If true, the collapse of the negotiations with the chip maker marks a setback for CEO Virginia Rometty, who is aggressively trimming corporate fat as part of her efforts to refocus the enterprise technology stalwart on fast-growing areas such as cloud computing and  analytics.

The attempt to  unload its fabrication business is merely the latest in a series of drastic moves IBM has made over the last few months in an effort to free up resources for new initiatives. In January, IBM sold off its commodity server business to Lenovo Group Ltd., to whom it had previously handed over its personal computer business in 2005, for $2.3 billion in cash and stock. The deal included the company’s System X, BladeCenter and a number of other product lines in addition to all the related manufacturing infrastructure and some 7,500 employees.

A few weeks later, reports surfaced that Big Blue has let go another 1,200 workers throughout Europe along with a few hundred more in India. Shortly thereafter, a union of IBM employees publicized plans to lay off between 13,000 and 15,000 additional staffers by the end of the year in a “workforce rebalancing” initiative dubbed Project Apollo that is expected to cost in the neighborhood of $1 billion and save multiples of that down the road.

The close relations between the vendor and Globalfoundries have long fueled rumors that IBM might try to leverage as the partnership as a shortcut out of the chip manufacturing business. The speculation was rekindled early last month after the latter tapped the former head of IBM’s 300mm fabrication plant in New York to oversee its facilities, a move that was soon followed by an insider leak confirming Big Blue was looking to leave the market.

The source divulged that the deal would have allowed IBM to eliminate about $1.5 billion in annual losses had it gone through, but as it turned out, a billion dollars wasn’t enough for Globalfoundries. A separate tipster revealed that the company, which spun out of AMD Inc. in 2009, asked approximately twice that amount in exchange for shouldering the burden of Big Blue’s money-losing semiconductor business. That demand apparently wasn’t met.

But just because the negotiations fell through doesn’t mean IBM is permanently stuck with a money pit. Some in the industry believe it’s still too early to completely rule out a sale to Globalfoundries, and even if that route is now closed, there are other buyers in the market. CEO Rometty can also opt to simply pull the plug on the unit, but that’s considered the least desirable option.

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