Behind great humor often lies irony. In the midst of a struggle by the European Union to extract $1.3B from Intel in an ages old Anti-Trust case, the latter makes a strategic move to embolden the Dutch firm ASML to accelerate the development of 450mm and EUV and thus save a continental jewel. What now say EU? When disfunction and bankruptcy abound, beware the need of sovereigns to extract not pints but gallons of blood. Intel sees an end game at hand, not today but in just a couple of years and it plays into its plans to win all of mobile: including Apple and Samsung. They parry the EU assault with a massive $4B investment and prepare to watch the poker players ante up or fold.
Intel Always Fights a Multi-front war knowing that it eventually wears down the enemy. Please, please we don’t speak of enemies unless we are in the realm of politics! However, one should be aware that without TSMC there is no Qualcomm, nVidia, AMD, Broadcom, Marvell and the rest of the ARM camp (especially ARM). And what of Apple and Samsung, the two leaders of the mobile Tsunami who will have 80%+ of the Smartphone and Tablet market by the New Year? They will have a choice to make in which the first one who blinks will have the opportunity to be years ahead of the other.
It is simple mathematics. Assume, conservatively that Intel is two years ahead of TSMC. Now presume Intel, conservatively launches 450mm two years ahead of TSMC, then it is like a 4 year lead in process technology. Now input your die sizes and run the cost models. It is daunting having to stare up at the Matterhorn before the climb begins.
We have learned in the past 6 months that Smartphones and Tablets are demanding leading edge process technology (Qualcomm sold out this year on 28nm 4G LTE chips). This was the one doubt that I had as to whether Qualcomm, nvidia and the rest of the ARM camp were safe in the foundries at an n-1 node while Intel played catch up with a true low power processor and baseband functionality. Intel can now force the game forward and even Apple will now have to consider how wise it is to hang back in older processes. Some amount of their processors will need to step up to the leading edge for cost and performance reasons.
The news articles from yesterday stated that ASML was open to additional investments from other foundries (i.e. TSMC and Samsung). I can see Samsung stepping up. TSMC is an extension of Qualcomm, Broadcom, nVidia and others. They will likely have to devise new long-term agreements from their partners that requires them to pony up dollars for the ASML investment. Or alternatively does Qualcomm write a check to ASML?Does Apple?
The maneuvers lately point to every survivor going vertical, however now we are looking at two separate vertical models. There is the device vertical model with LCD screens, NAND Flash, enclosures etc.. that Apple and Samsung are very adept at. In last weeks blog I mentioned how Intel was funding Taiwanese panel makers to guarantee supply for ultrabook manufacturers (likely at the expense of AMD and nVidia). Now we have Intel letting the world know that being a MAN in the semiconductor industry requires owning more than just fabs. Real Men must now invest in the semiconductor R&D tool chain. The Question that Wall St. should ask is the following: What is the total value that will derive 4-5 years down the line from an investment in ASML’s R&D?
FULL DISCLOSURE: I am Long AAPL, INTC, QCOM, ALTR