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Fitch Ratings: Intel Deal Positive For ASML, Semiconductor Industry
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Wednesday, July 18, 2012:
ASML’s customer co-investment programme, which includes a proposed 15% equity participation by Intel, is positive for the Dutch-based lithography company on many fronts, and will have wider benefits for the semiconductor industry, Fitch Ratings says.
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The programme will see Intel take an initial 10% stake, rising to 15% subject to ASML shareholder approval for total cash proceeds of EUR2.5bn. Negotiations with Samsung (‘A+’/Stable) and TSMC (not rated) could lead to them taking strategic stakes of up to a further 10%. Importantly, strategic owners will make material commitments to fund ASML’s R&D for extreme ultraviolet (EUV) and 450mm lithography, as well as advance purchase commitments for these technologies, over the next five years.
The announcement last week is a key development for ASML (‘BBB’/Stable). It opens the way for significant minority ownership by some of the industry’s largest manufacturers. Intel, Samsung and TSMC are ASML’s largest customers and bellwether companies for capital spending and for dictating the pace at which lithography techniques can advance.
Intel’s commitment highlights how embedded ASML has become in the industry’s supply chain, specifically in “feature shrink.” This is the physics of making chips smaller and improving the capabilities of devices like smartphones.
In addition to its equity investment, Intel will commit R&D funding of approximately EUR830m over five years. Roughly two-thirds of this will be aimed at accelerating the ability to process 450mm wafers verses the current 300mm standard, and one-third to EUV. This investment is expected to bring forward the delivery of production tools for 450mm and second generation EUV by two years to 2018.
EUV and 450mm are potentially the most important technological changes for the industry for the next 10 to 15 years. Equity and R&D participation by key customers shares the risks and mitigates the margin pressures caused by developing this level of new technology.
This acceleration and other co-investment agreements are likely to further consolidate advanced semiconductor manufacturing capabilities, as perhaps one other lithographer and fewer semiconductor makers will have the resources to keep up. As a result, these companies are likely to consolidate market share.
ASML is being chosen by its customers to be one of the few members of the semiconductor supply chain with advanced technology capabilities. Leading edge lithography is now effectively a two-player market. Intel is also supporting Nikon’s development of 450mm tools, but the structure and scale of the ASML investment stands out, while its R&D support for ASML’s EUV development underlines ASML’s leadership in advanced techniques. Partnerships of this nature and scale are likely, in our view, to make it difficult for ASML’s competitor to win significant market share in this technology.
For Intel and the wider industry the programme accelerates the timing in which these technologies become available as mainstream production techniques. The move to 450mm will have significant cost advantages for the industry. Moving to 450mm from 300mm doubles the wafer area and the number of chips that can be produced on a wafer.
Intel estimates 30% – 40% cost savings and an NPV benefit to its cost structure of USD10bn. These savings will multiply across the industry and the move to 450mm will now be possible that much sooner. The non-voting and non-exclusive nature of Intel’s participation ensures that these benefits will be spread across the industry.
For Intel, the investment is a key element of its defence of the PC market against ARM-based processor solutions, as well as Intel's strategy to break into smartphone and tablet markets in the longer-term.
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