| SAN FRANCISCO/AMSTERDAM
SAN FRANCISCO/AMSTERDAM ASML, the world's top chip equipment maker, signed up Intel Corp to bankroll its research into costly next-generation chipmaking technology, and aims to reach similar deals with TSMC and Samsung Electronics.
ASML's chief executive said on Tuesday the Dutch firm had asked its three biggest customers - Intel, TSMC, and Samsung Electronics - to help fund its R&D in exchange for up to 25 percent of its shares. Following Intel's decision, it expects to announce more customer investments in the coming weeks.
ASML shares rose 10 percent on the news. Intel fell about 1 percent after hours.
Fast-tracking the development of such technology not only cements ASML's position as the market leader ahead of Nikon, but could also slash production costs for hot consumer gadgets such as smartphones and tablet computers.
"We're talking about $50 tablets" said Richard Windsor, Nomura's global technology specialist.
"This brings into the realms of possibility a technology that we thought wasn't feasible and opens up the possibility for greater cost reductions".
Intel said on Monday it would spend more than $4 billion to buy up to 15 percent of ASML and fund its research. TSMC said it was considering a similar deal.
Intel hopes to speed up the adoption of the next generation of chip manufacturing processes from ASML by as much as two years. That will require huge capital investment, but would deliver billions of savings by cutting chip production costs.
ASML, the world's largest supplier to chipmakers of machines that etch circuits onto silicon wafers, wants to spread the risk of developing cutting-edge equipment based on 450-millimeter wafer sizes and "extreme-ultraviolet" or EUV lithography.
Under the terms of the deal, Intel will invest $1 billion in research into those two technologies, which are expected to emerge in the next few years.
It will also acquire an initial 10 percent stake in ASML and tack on another 5 percent if it wins shareholder approval, for a total of about $3.1 billion.
Analysts said the deal would help cement ASML's market leading position, save money, safeguard its technology lead, and make it harder for smaller competitors to keep going.
Shares in rival Nikon, which also researches and develops lithography processes, fell 7 percent on the news. A spokesman said Nikon "would like to continue our cooperation with Intel going forward".
"In a bold move to bring heavy investment into its future development needs, tie in large customers and damage any Nikon ambitions in EUV, ASML has delivered a strong message of strategic intent for the next semi cycle and beyond," Jeffries International research said in a note.
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 said Intel could 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," Intel Chief Operating Officer Brian Krzanich said in a statement. "The faster we do this, the sooner we can gain the benefit of productivity improvements."
Intel, the world's top chipmaker, gains no exclusive rights to ASML products in the deal. But Freedman said Intel stood to gain if the overall industry benefited and by lowering the cost of technology in emerging markets would open new markets.
Intel remains at the vanguard of computer processors but is seeing rivals like Samsung Electronics come on strong in application of 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.
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.
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". ($1 = 0.8130 euros)
(Additional reporting by Tarmo Virki in Helsinki and Alexei Oreskovic in San Francisco; Editing by Richard Chang and Richard Pullin)