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Intel throwing more than £2.5 billion at next-gen semiconductor R&D

Intel on Monday announced an initial $1 billion (£640m) contribution to Dutch semiconductor tool maker ASML's research and development programmes. The funds will be used for 450-millimeter wafers and extreme ultra-violet (EUV) lithography and kick off a series of R&D funding and equity investment agreements that will total over $4 billion, or in excess of £2.5 billion.

The investment could accelerate the development of those next-generation technologies by "as much as two years," the companies said in a statement.

Intel's first monetary contribution to ASML's R&D efforts is the commitment of $680 million (£438m) for the development and delivery of 450mm manufacturing tools. The chip giant will also purchase about 10 per cent of ASML's pre-transaction issued shares for approximately $2.1 billion (£1.35bn) in the first phase of the partnership with ASML.

"Productivity improvements driven by enhanced wafer manufacturing technologies, especially larger silicon wafers and enhanced lithography technologies with EUV are direct enablers of Moore's Law, which delivers significant economic benefits to consumers," said Brian Krzanich, Intel senior vice president and chief operating officer.

"The transition from one wafer size to the next has historically delivered a 30 to 40 per cent reduction in die cost and we expect the shift from today's standard 300mm wafers to larger 450mm wafers to offer similar benefits. The faster we do this, the sooner we can gain the benefit of productivity improvements, which creates tremendous value for customers and shareholders," he added.

In the second phase of the deal, which requires ASML shareholder approval, Intel would invest about $340 million (£219m) in the Dutch firm's EUV research and development efforts and buy another 5 per cent of ASML's shares for another $1 billion (£644m).

Intel has also committed to advance purchase orders from ASML for the 450mm and EUV development and production tools that emerge from the accelerated R&D effort. The agreement must still pass regulatory hurdles and is expected to be approved by ASML shareholders in a third-quarter vote, the companies said.

A Growing Gulf

While Intel has long been at the forefront of advanced process technology in keeping with the famous dictate of its co-founder Gordon Moore, in recent months the company has stated that the gulf between a small group of leading semiconductor firms and the rest of the field is growing.

In May, Intel president and chief executive Paul Otellini predicted that his company and a handful of other vertically integrated semiconductor manufacturers were on the cusp of a "Golden Age" where cutting-edge process technologies would confer even greater market advantages to the firms that develop and implement them first.

"I believe we are developing a set of unique assets that will give us increasingly differentiated competitive solutions going on for years," Otellini said in his opening address at Intel's annual Investor Day, held at the chip giant's Santa Clara, California headquarters.

"For integrated device manufacturers, there's a Golden Age ahead of us," he continued. Otellini predicted that only Intel and "one or two others" would enjoy the advantages of fully integrated chip design, fabrication, and distribution models as cost barriers to innovating new process technologies and building out next-generation semiconductor manufacturing plants would further winnow down such companies to a mere handful.

The deal with ASML is more evidence of Intel's commitment to staying ahead of the technology curve and "trying to put distance between" the company and rivals like TSMC, said Patrick Moorhead, chief analyst for Moor Insights & Strategy.

Image credit: Reuters