Intel’s Prudent, ASML Brilliant, Says Street
By Tiernan Ray
July 10, 2012, 6:02 P.M. ET
blogs.barrons.com
Shares of Intel ( INTC) today closed down 61 cents, or 2%, at $25.56 after the company last night said it plans to invest as much as $4.1 billion in equipment maker ASML Holding NV ( ASML) to help speed up the development of technologies to build the most cutting-edge chips.
The deal could see Intel owning as much as 15% of ASML’s stock, and ASML has said it is willing to sell as much as 25% of the shares to its customers including Intel.
Shares of ASML closed up $4.11, or 8.5%, at $52.57, one of the few good performers in a rough market today.
The Street seems to be fairly positive on that particular development today for both companies, though clearly ASML seems to be walking away with the big payoff here.
Glen Yeung of Citigroup reiterated a Buy rating on Intel shares, and a $34 price target, writing that, “We view Intel’s technology leadership as increasingly differentiating, and view this latest investment as progressing their leadership, with only minor impact to their model.”
Yeung writes that Intel has secured access to not only 450 millimeter wafer technology, but also “ancillary technologies”:
Intel’s investment does not afford them early/exclusive access to any technology. Rather, it incents ASML to ready EUV/450mm in a timeframe that is well-suited to Intel’s roadmap. And while Intel would not provide specific timing, pilot for EUV in 2015 is consistent with Intel’s 4-year ancillary technology cadence: strained silicon (2003), HKMG (2007), tri-gate (2011), EUV (2015). We anticipate Intel will be first to market with EUV at the 10nm node, despite having eschewed the readiness of EUV at that node back in 2009. As an aside, recent work by industry consortia (SEMATECH) suggests EUV inspection tools can meet the 2015 timeframe: mask blank actinic inspection (2013), mask defect review (2014), patterned mask inspection (2013-2015), alleviating one impediment to EUV progress by 2015.
Daniel Berenbaum of MKM Partners, who has a Buy rating on Intel shares, and a $33 price target, wrote that investors shouldn’t be concerned about the price tag of the deal:
The incremental R&D for ASML will enable parallel development of 450mm tools and EUV (extreme ultraviolet) lithography. INTC’s leading manufacturing position should enable it to take advantage of earlier availability (the implication is that availability will be pulled in from the end of the decade) to further open the gap with competitors.
Bernstein Research‘s Stacy Rasgon writes that Intel is helping to arm its chip competitors, as well, since Intel gets no exclusive on the technology developed by ASML. But Intel couldn’t afford not to help ensure the development of cutting edge lithography techniques:
Intel is more dependent on the eventual success of both 450mm and EUV than many players (given they ride the edge of Moore’s law); failure of the technologies would be a disaster for them and is now significantly less likely, in our opinion.
Barclays Capital‘s equipment analyst CJ Muse, who has an Overweight rating on ASML’s ordinary shares ( ASML:AEX) and a €45 price target, writes that the deal makes life harder for other equipment vendors:
We view the announcement as a longer-term negative for other equipment vendors. Specifically, this partnership between ASML and Intel in effect pushes the 450mm migration forward, which will not only be costly for other equipment vendors but will also reduce the TAM for batch processing equipment. And since we do not expect similar types of customer investments in other equipment companies (as most of these sectors have at least two vendors with solid market share), we view this as a longer negative for other equipment names, though unlikely to change much in the near to medium term. On the flip side, an earlier transition to 450mm would be a positive for vacuum pump vendor EVAC.
Pacific Crest‘s Weston Twigg, who has an Outperform rating on ASML shares, raised his price target to €47 from €41, calling the deal a “brilliant move” by the company.
By holding the keys to the industry’s 450 mm wafer transition and EUV,
ASML has been able to get Intel to help fund its 450 mm program, with additional funding for EUV, to boot. Intel has agreed to fund €829 million in R&D for ASML and take a 15% ownership stake in ASML. |
