Intel funds next-gen chipmaking, buys into ASML for $4.1 billion

Mon Jul 9, 2012 7:54pm EDT
 
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By Edwin Chan

SAN FRANCISCO (Reuters) - Intel Corp will spend more than $4 billion to buy a stake in ASML and bankroll its research into costly next-generation chipmaking technology, a major vote of confidence in the Dutch company that sent its U.S. shares soaring 6 percent on Monday.

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 savings in future, analysts said.

ASML, the world's largest maker of machines that etch circuits onto silicon wafers and a barometer for the chip sector, 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 add another 5 percent pending shareholders' approval, for a total of about $3.1 billion. It also benefits by being able to move on to larger wafer sizes.

"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."

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.

Under the agreement, Intel 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."   Continued...

 
An Intel logo is seen at the company's offices in Petah Tikva, near Tel Aviv October 24, 2011. REUTERS/Nir Elias