Intel to buy US$4.1 bil. stake in chip firm ASML

By Edwin Chan,Reuters

SAN FRANCISCO — Intel Corp. will spend more than US$4 billion to buy up to 15 percent of ASML and bankroll the Dutch company’s research into costly next-generation chip-making 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 chip-makers of machines that etch circuits onto silicon wafers, may want to spread the risk of developing cutting-edge chip-making 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 US$3.1 billion. It also benefits by being able to move on to larger wafer sizes. Apart from the savings that will bring, the chip-maker may also be moving to safeguard its current technology lead.

“By accelerating the introduction of 450-mm 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 chip-makers 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 US$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 chip-maker 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.