IBM's semiconductor division is focused primarily on its Power Architecture processors, which are used in IBM servers. The group has also done extensive semiconductor research -- copper interconnects, Silicon Germanium (SiGE) and Silicon on insulator (SOI) -- to improve performance. The division includes IBM's custom processor business, which helped co-develop the Cell processor for Sony's next-generation PlayStation game console.

The layoffs included workers involved with packaging and testing, technology development and supply chain operations, said the spokesman. IBM is offering affected employees severance packages that include one week's pay for each six months worked, as well as transitional medical coverage and outplacement services.

IBM's chip manufacturing business has been slow of late. The company reported that the unit's sales were off 9% year-over-year in the second quarter.