The two are to form a new company to operate IBM's facility in Boeblingen Hulb, near Stuttgart, Germany.
Philips will own 51 per cent of the company, while IBM retains a 49 per cent stake.
The joint venture is expected to start operations by the beginning of April. IBM's employees at the site will work for the new company to make products solely for Philips and IBM.
The companies said they plan over time to upgrade the facility for production of integrated circuits for the next generation of technology.
"We also retain the flexibility to consider other alternatives over time, including strategic acquistions." Lou Gerstner, IBM's chairman and chief executive, said.
At the end of 1994, IBM reported that it had $10.6bn in cash and marketable securities, an increase of $3.6bn since year-end 1993.
Last month IBM reported profits for the final three months of 1994 that were treble those of the same period a year earlier and well above expectations. Profits for the year were $2.97bn.
Jerome York, finance director, has told analysts that the company may also make strategic acquisitions.
IBM also said Lucio Noto, chairman and chief executive officer of the oil group Mobil Corp, would join IBM's board, expanding it to 14.
An IBM spokesman said the company's by-laws allowed the board to have between nine and 25 directors.Reuse content