* ASML shares leap
* $4.1 bln spending includes R&D;, stake buy
* Intel first to sign onto ASML investment program
(Adds analyst’s comment)
By Edwin Chan
SAN FRANCISCO, July 9 (Reuters) – Intel Corp will
spend more than $4 billion to buy up to 15 percent of ASML
and bankroll the Dutch company’s research into costly
next-generation chipmaking technology, a major vote of
confidence in the European firm that sent its U.S. shares
soaring 6 percent.
Intel hopes to speed the adoption of the next generation of
chip manufacturing processes from ASML by as much as two years.
That will require intensive capital investment, but delivers
billions of future savings by cutting chip production costs,
analysts said.
ASML, the world’s largest supplier to chipmakers of machines
that etch circuits onto silicon wafers, may want to spread the
risk of developing cutting-edge chipmaking equipment, based on
450-millimeter wafer sizes and “extreme-ultraviolet” or EUV
lithography.
Intel will acquire an initial 10 percent stake in its
European supplier and tack on another 5 percent if it wins
shareholder approval, for a total of about $3.1 billion. It also
benefits by being able to move on to larger wafer sizes.
Apart from the savings that will bring, the chipmaker may
also be moving to safeguard its current technology lead.
“By accelerating the introduction of 450mm fabs, Intel will
increase barriers to entry a lot and make it harder for small
players to keep going,” said Pierre Ferragu, a senior analyst
for Sanford C. Bernstein.
“By supporting EUV, Intel probably anticipates continued
accelerated shrink plans beyond 15 nm…, and also a world in
which cost efficiency matters more and more for them.”
Intel and other chipmakers are grappling with slowing demand
as consumers shift to mobile devices, and economic growth in
Europe and even emerging markets is weakening. On Monday,
Advanced Micro Devices warned its second-quarter revenue may
slide 11 percent, blaming disappointing demand from China and
Europe.
RBC Capital analyst Doug Freedman estimates Intel can save
about $2 billion a year on 450mm processes, versus the current
standard of 300mm. Larger silicon wafers lower production costs
because more chips can be sliced off them.
“The transition from one wafer size to the next has
historically delivered a 30 to 40 percent reduction in die
cost,” Chief Operating Officer Brian Krzanich said in a
statement. “The faster we do this, the sooner we can gain the
benefit of productivity improvements.”
Under the agreement, the world’s top chipmaker gains no
exclusive rights to future ASML products. But Freedman said
Intel, as the sector leader, stands to gain if the overall
industry benefits.
“I was a little surprised that ASML did not offer
exclusivity or preferential access,” Freedman said. But “if in
fact they’re lowering the cost of technology in emerging
markets, you’re opening markets as well.”
Intel remains at the vanguard of computer processors but is
seeing rivals like Samsung Electronics come on
strong in application microchips for smartphones and other
mobile devices. Analysts say the U.S. company maintains a
two-year lead over the competition but needs to spend heavily to
safeguard that.
MARKET SLOWING
ASML competes with Japanese groups Canon
and Nikon. Its clients include Intel and Samsung
Electronics. Ferragu said Intel’s decision to tie up
with ASML might come as a blow to Nikon, which also researches
and develops lithography processes.
A shift to cutting-edge EUV helps push the natural
progression of semiconductor technology advancement known as
“Moore’s Law”, which posits that the average number of
transistors packed on a chip doubles every 18 months.
Intel will help finance $1 billion of research into 450mm
and EUV chipmaking, both cutting-edge technologies expected to
emerge in the decade’s second half.
While many semiconductor companies outsource the fabrication
of actual chips to third-party “foundries”, Intel is among the
last remaining chipmakers that build and operate their own
network of multibillion dollar production facilities, or “fabs”.
“If Intel is able to ramp 450mm production ahead of the
world’s fabs such as TSMC or Global Foundries et al, it may yet
prove that real men have fabs,” said John Jackson from CCS
Insight. “There are signs that the global semiconductor
fabrication sector is poised to realign.”
Intel is the first major chipmaker to sign up for ASML’s
“customer investment” program, under which it hopes to enlist
partners to fund expensive research into 450mm wafer technology.
Under their agreement, Intel will pay 1.7 billion euros
($2.1 billion) for the initial 10 percent slice of ASML, and a
preliminary 553 million euros for research.
The pact also involves advance orders of next-generation
ASML chipmaking gear, strengthening the Dutch firm’s assurance
to move ahead in developing the technology.
Intel shares slid about 1 percent to $25.87 after hours,
from a close of $26.17 on Nasdaq. ASML shot up 6.3 percent to
$51.53 from a close of $48.46.
($1 = 0.8130 euros)
(Additional reporting by Tarmo Virki in Helsinki and Alexei
Oreskovic in San Francisco; Editing by Richard Chang and Richard
Pullin)
