While most manufacturers continue to suffer from a slowdown in the semiconductor industry, Intel (NASDAQ:INTC) seems to be thinking a step ahead, as is evident from the $4.1 billion investment that the company has committed into the Dutch semiconductor equipment company – ASML Holdings (NASDAQ:ASML).
The multi-party development program initiated by ASML is set to fund the next generation chipmaking technology and Intel is the first company to commit to the program. As per the deal, Intel will invest more than $3 billion in ASML and chip in an additional $1 billion to fund R&D activities, which will aim to step-up development of two new technologies – 450 millimeter wafer technology and extreme ultra-violet (EUV) lithography.
By investing in the company, Intel intends to push these chips almost 2 years faster into the market and has already committed to advance purchase orders for 450 mm and EUV development and production tools from ASML. Though, the deal does not entitle Intel to gain any exclusive rights to future ASML products, the company will hold close to 15% of ASML’s shares post completion of the deal.
While many semiconductors outsource the fabrication of chips to third party foundries, Intel is one the few companies that builds and operates its own network of production facilities. 
The R&D investment by Intel will help ASML spread the risk of developing the cutting edge technology, which would lead to productivity improvement and reduce cost for semiconductor manufacturers, who in turn will be in a position to pass on the significant economic benefits to their customers. We believe, that as Intel holds a majority share in the microprocessor market, it will be one of the first company’s to benefit from the speedy transition to this critical technology.
Our current price estimate of $30.62 for Intel, stands at a premium of close to 20% to the current market price.Notes:
- Intel funds next-generation chipmaking, buys into ASML for $4.1 billion, Reuters, July 9, 2012 [↩]