Good day, ladies and gentlemen, and welcome to the Intel Manufacturing Technology Announcement. At this time, all participants are on a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touch-tone telephone. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mark Henninger. Please go ahead.
Thank you, Patrick. Good afternoon, everyone, and thanks for joining us on short notice for our conference call to discuss our announcement of a series of important agreements with ASML. By now, you should have received the press release that we issued this afternoon. That press release, along with a slide deck summarizing the agreements, is available on our IR website, intc.com. ASML's press release is available at their website for reference. The ASML management team will also host a conference call at 8:00 A.M. Tuesday, Central European Time, or 11:00 P.M. tonight, Pacific Time. With me today are Brian Krzanich, Senior Vice President and Chief Operating Officer, and Stacy Smith, Senior Vice President and Chief Financial Officer. Before we begin, let me remind everyone that today's discussions contain forward-looking statements based on the environment as we currently see it, and as such, do include risks and uncertainties.
Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. Also, if during the call we use any non-GAAP financial measures or references, we'll post the appropriate GAAP financial reconciliations to our website, intc.com. Today's call will begin with a few remarks from Stacy to put the announcements in context. Brian will then provide an overview of the strategic rationale for the agreements and some detail on how they're structured. We'll then open the line for a brief Q&A. With that, let me go ahead and turn the call over to Stacy.
Thank you, Mark. I'll make a few brief remarks to put these announcements in context, and then I'll turn the call over to Brian. In May, we spent time with many of you here in Santa Clara at our Investor Day, outlining the role our manufacturing and process technology leadership plays in our strategy to succeed across a range of computing devices, from smartphones to ultrabooks to servers. We also emphasized our view that process technology and manufacturing leadership is becoming an increasingly valuable competitive advantage. The announcements Intel and ASML are making today are important milestones that meaningfully advance that strategy. Taken together, these investments will accelerate 450 millimeter and EUV by up to two years, enabling us and the industry to benefit from the cost, power, and performance scaling of Moore's law.
The agreements between Intel and ASML include a combination of technology collaboration, equity ownership, and commercial agreements that we expect will accelerate the development of innovative production technologies and will allow Intel to deliver significant value to our shareholders. Let me just put the 450-millimeter benefits of these agreements into context. Our last wafer size transition, from 200-millimeter wafers to 300-millimeter wafers that we use today, began in 2002, when we were a $27 billion company. At that point in time, the net present value of the 300-millimeter cost reduction was worth a couple of billion dollars to us. I expect the shift to 450 millimeter alone to be worth more than five times that amount. With that, let me turn the call over to Brian to go through the agreements and strategy in more detail.
Thanks, Stacy. I'm pleased today to announce a series of agreements between Intel and ASML that will increase our collaboration around key R&D initiatives and have significant and exciting implications for both of us, in fact, really for the whole industry. As Stacy said, we are both making a major commitment to accelerate important manufacturing technology, speeding up the development and deployment of 450-millimeter wafers and extreme ultraviolet lithography, often called EUV, by as much as two years. I'll get into these important benefits to Intel and the industry in a few minutes, first let me describe our investments and how they are structured. As Mark noted, much of the detail is also contained in the deck posted on intc.com. At a high level, we've announced today that Intel is the first and largest participant in a multi-party development program with ASML.
This program has two separate components, an investment by Intel and potentially other ASML customers in support of ASML's R&D, an equity investment by Intel and potentially other industry partners as well. The program is structured in a couple of phases, the first of which only involves Intel and is subject to typical closing conditions, including regulatory approval. In the first phase, Intel is making an R&D investment of €553 million, or approximately $680 million, and an equity investment of €1.7 billion, or approximately $2.1 billion. This equity investment will give Intel an initial 10% pre-transaction ownership of ASML. The second phase of the program, which requires ASML shareholder approval, will consist of an additional R&D investment of €276 million, or approximately $340 million, by Intel, and an additional equity investment of €838 million, or approximately $1 billion, for an incremental 5% of post-transaction shares.
This would bring Intel's total equity stake in ASML to approximately 15%. Other ASML customers are also being offered the opportunity to participate in the phase 2 R&D and equity program. ASML will seek approval from its shareholders for this second phase of the program in the third quarter of 2012. Both phases of the program are subject to standard closing conditions, including regulatory approvals.
Phases of the transaction to close after the shareholder vote in Q3. To assist ASML in making the long-range investments needed for 450 and EUV, Intel has also committed to advanced purchase orders for the 450 millimeter and EUV development and production tools from ASML. A key benefit to Intel of this transition is the commitment we receive from ASML to meet our needs for the 450 millimeter technology development and production tools. Many of you have followed Intel over time and know that this is not the first time we've invested in the manufacturing ecosystem to enable innovation with the goal of generating returns for our stockholders. This is a large investment, and it's significant. I'd like to share with you the strategic thinking behind this transaction.
As you know, our industry is continuing to advance manufacturing technologies along two key vectors, in particular, increasing wafer size and scaling transistors. The productivity improvements enabled by these advancements are a direct enabler of Moore's Law, which for over 40 years has delivered significant economic value throughout the semiconductor supply chain, and ultimately to consumers of computing and electronics devices. Today's announcements are aimed at accelerating the roadmap along both of these vectors. The focus of the first phase of this program is for the 450 millimeter lithography tools. This investment will enable ASML to advance 450 millimeter tool development in parallel with other ongoing R&D initiatives, accelerating the time to get these tools into production.
The transition from one wafer size to the next has historically delivered a 30%-40% die cost reduction, and we expect the shift from today's 300 millimeter to 450 millimeter wafers to have similar benefits. In terms of scaling, as many of you know, ASML is an industry leader in EUV lithography development, and EUV will be a focus of the second phase of this development program. EUV will enable us to manufacture smaller, less expensive, and more energy-efficient transistors than would have been possible with today's lithography technology. Accelerating innovation at nanometer scale requires very close collaboration between Intel and our key suppliers, and our investment in ASML's 450 and EUV R&D program is intended to provide that cooperation and accelerate these technologies by as much as two years. With that, let me turn it back over to Mark.
Thanks, Brian. We'll now move on to a brief Q&A session. As is our normal practice, we'll ask each participant to ask one question and a follow-up if they have one. We'll also ask that you please limit your questions to today's announcements. We'll address other topics during our regularly scheduled second quarter earnings conference call on July 17th. With that, Patrick, if you would go ahead and please introduce our first questioner.
Thank you. If you have a question at this time, please press star one on your touchtone telephone. Our first question comes from Uche Orji from UBS. Your line is open.
Sure. Thank you very much. My first question is, in terms of how this investment in ASML will affect the other parts of the ecosystem. Is ASML the only one that is really in charge of accelerating both 450 and perhaps EUV, or are there other participants? I ask this because I understand part of the issue with EUV is light source. Will you expand this program also from your side to include other members of the ecosystem? That's my first question, the same also applies for 450, where I think the impact is even much wider across the industry. I just need to understand how this investment in ASML and what it means for the rest of the ecosystem and how Intel plans to go about this.
Sure. This is Brian. I'll take that question, Uche. We have a long history of investing in our supply chain to enable the various transitions in Moore's Law, and we've done that time and time again. If you look over the last year, we've done some around 450, whether it be the G450C consortia in New York. We've done some investments with ASML's competitor, around 450, earlier this year as well. We have that kind of investment and run rate built into our models from in the past and moving forward in the future. This one's a little bit larger and a little bit different because it's a combination of 450 and EUV and doing this equity investment, which we think is a good move for our shareholders. That's why we're really here talking to you today because this one was quite a bit different.
We don't have any other big ones like this in our roadmap currently, you can expect the more normal run rate that we've always done to enable the supply chain for Moore's Law.
Sure. Sure. Just one follow-up. In terms of the timing for EUV, you said it's going to pull it in by two years. I'm not sure I heard exactly when we'll be expecting EUV equipment in place. In terms of the actual benefit to Intel, you're the first in phase one. Phase two will obviously be expanded to include other players. If there are not that many takers for phase two and there's a shortfall, are you committed to putting more money into this kind of scheme?
That was a couple of questions.
Sorry about that.
First, we haven't publicly stated what our intercept point for EUV is.
Sure.
We will move to EUV likely before we move to 450, we can kind of think about the timing of each of those. We are not committed to this agreement that if others don't take up their 10% of that second half, that we would be required to take up any more. There's no requirement on Intel. I'm not going to speculate on what we would do.
All right.
We'd really rather have others play. I think it's important that this become an industry. You'll see us more an advocate of the other players participating, and we've already started that effort.
Taking the other side of that, Uche, this deal on a standalone basis, we believe is sufficient to bring about the two-year pull-in both EUV and 450. If other participants come in, it's just helpful for that. We don't need them, but we'd like them to come in and participate.
Yes.
Fantastic. Thank you very much. Our next question comes from Glen Yeung from Citi. Your line is open.
Thanks. It's my assumption, and correct me if I'm wrong, that the benefit you get from this is not that you will necessarily get access to this technology before anyone else, but that you already done a lot of work in regards to these two technologies, and to the extent they're accelerated, you may be in a better position to accept them on an accelerated basis. I guess my question is that an accurate portrayal? Then two, if you could just describe some of the work you've done in 450 and EUV to date that will put you in a better position to accept these accelerated technologies.
Okay, this is Brian again. I'll try and answer that. You're right. We do not get any special access or preferential access as part of this. If you take a look at Intel's history, we have a long history of really pushing the envelope and staying on the Moore's law transitions. Really, if you take a look at it, really innovating around the transistor, and the Tri-Gate transistor is a more recent example that's driven through the innovation that we've delivered. I think that is what this same result is. We will take these tools, and we will simply drive Moore's law at a quick rate. We do not get special treatment or differential treatment.
My second question, Brian, was kind of around the sustainability of any kind of lead you may derive from this. I think what I'm hearing is that it's really part of the same process Intel is always undergoing to move forward on technologies. This investment is really providing you with tools to help you continue that process; is that right?
That's right. There's a second part of this, which is the equity part, which is, we believed if we were going to make this kind of a R&D investment, it made sense to make the equity investment at the same time.
Okay. Thanks a lot.
Thanks, Glen.
Thanks, Brian.
Our next question comes from John Pitzer from Credit Suisse. Your line is open.
Yeah, good afternoon. Stacy, you talked about the NPV value of the cost benefit of 300 being about $2 billion and kind of moving to 450 being 5X that. Can you help us with the math there? I guess if I were to look at it on an ROI basis and not an absolute cost basis, is the ROI similar and you're just getting 5X because the cost is significantly more?
Well, I think that the simple answer is that the reason we're getting a larger return on investment, you can actually use those synonymously, or the net present value ROI are the same here. The reason that we're getting a larger benefit on the move to 450 millimeter is that our business has grown, and the time lag between 300 millimeter and 300 millimeter was shorter than the time lag between 300 millimeter and 450, and so you can kind of see it in the CapEx numbers that we're spending today. We're building a lot of factories, and those are large factories to support a large business. You just get a magnified cost benefit from the transition.
Then I guess my second question, Brian, historically, you've had a couple of lithography vendors. You're doing a deal here today with just one of them. Any implications or anything we should read into around relative market share or kind of where the rest of the litho industry is relative to what you need for either EUV or 450?
No. As I said, we made investments in ASML's competitor earlier this year. We didn't make it a big public event. It wasn't maybe as big, but it was significant. We still believe in the dual supplier, and we will continue to use the dual supplier methodology or the multiple supplier methodology. If you look at the whole, for example, even in the G450C, the structure is built that there's at least two suppliers for each tool set built into the G450C. We still absolutely believe in the multiple supplier world.
Great. Thank you, guys.
Our next question comes from CJ Muse from Barclays. Your line is open.
Good afternoon. Thank you for taking my question. I guess first question, if you look back to the 200-millimeter, 300-millimeter transition, it was largely paid for by equipment vendors, and now you've had an investment in ASML. Curious how you expect to compel other equipment vendors to get their tool set ready for the time you'd like to implement 450.
Well, we actually think or we actually believe as part of the G450C that we have an alignment of the suppliers that we need for 450 along this timeline. We believe we're already there. ASML, too, was aligning. This is their pull-in to allow them to pull in for those two years. This isn't a case of them not supporting 450; it's in a case of them being able to accelerate. They're a little bit unique that they had both the EUV and the 450 right on top of each other, which are very large technical investments and technical efforts that we're aligning on top of them.
That's helpful. As quick follow-up, clearly I think this speaks to rising capital intensity and the desire to drive improvements with both EUV and 450. How should we interpret that in terms of sort of the near-to-medium-term impact to gross margins for you guys?
Near to medium term, this won't have any impact really on the financials generally. As we said in the document posted on intc.com, a significant portion of the NRE part of this will account for as a prepaid asset because we'll get it back later as we're purchasing tools in various ways. We also will be getting a dividend back from ASML. When you look at that, it's going to have a negligible impact on short and medium-term financials. Long term, we think that from the baseline we were on before, we're going to get a very significant payback in terms of reduction in capital and an improvement in cost and an improvement in gross margin. That's not in the short or medium term. If pilot line is 2015, you're looking out a little later than that before you start to see the impact.
Great. Thank you.
Welcome.
All right, operator, why don't we go ahead and take two more questions.
Our next question comes from David Wong from Wells Fargo. Your line is open.
Thanks very much. Actually, following up on your comment just now about financials. You've talked about capital intensity rising for Intel, at least in the near term. If you and ASML hit your goals for schedule on 450 millimeters in EUV, will this actually result in a reduction of capital intensity at some point in the future, and if so, can you give us any idea as to which year will be the peak year for capital intensity?
It'll certainly reduce the capital intensity from the path that we were on before. We haven't really gone out beyond 14 nanometer to talk about where we are. I think I'll hold off on answering that. As we go through the longer-term discussions in the investor meetings, we'll talk to you about some of those longer-term trends.
Okay. Just another quick one. What light wavelength of EUV will you be working with ASML on, and is this the same wavelength you're working with the other litho vendor that you've invested in?
Yeah, I'm not going to give you the specific wavelength, but there is a common wavelength that people are tending to connect to or align to, yes.
Great. Thanks.
Thanks, David.
Our next question comes from Stacy Rasgon from Sanford Bernstein. Your line is open.
Hi, guys. Thanks for taking my question. Just curious between the two efforts, both 450 and for EUV, which do you feel like is more critical to meet the future path and future goals that you're on? Which is it more critical to ensure success on?
That's kind of like asking which was more critical, the chicken or the egg, right? They're both critical to pull this together. 450 isn't as much a Moore's Law as a cost reduction. It's critical to that discussion we just had about capital intensity. EUV becomes critical at some point because it provides both a cost reduction for Moore's Law and in some points, a path to Moore's Law. You start having difficulties at some point without it. You need a wavelength transition to occur.
Okay, we've already.
They're both critical. From a timing standpoint, the current estimate is we'll go to EUV before we go to 450. We have multiple technology options that allow if those shift or move, we could adjust. I would argue that they're both critical, and they're critical for different but equal reasons.
Got it. No, all I was thinking was we have a number of players out there right now who are already sort of calling for the end of scaling advantages from Moore's Law. You could look at this in terms of EUV allowing that scaling to continue, or you could look at it as if scaling is not going to continue on the transistor level, you need a wafer size transition, otherwise there's no other way to go. Is that the right way to think about this?
Not quite. There are other tricks to do scaling other than EUV. If you did 450 and you stopped scaling, you would get a cost reduction, but you wouldn't get some of the performance improvements like lower power, better speed or performance of the transistors, right? That's why I always say you've got to have both. These transitions are critical and both of these transitions are critical. As Stacy said, we're a little bit delayed on both of these, and that's why we're really driving to deliver both of these to the industry now.
Got it. Thank you, guys.
Thanks, Stacy. Thank you all for participating in this afternoon's call. That concludes the presentation, and we look forward to talking with you on Tuesday, July 17th at 2:00 P.M. Pacific daylight time for our second quarter earnings conference call. Patrick, you can go ahead and wrap up the call.
Ladies and gentlemen, thank you for participating in today's program. This concludes the program. You may all disconnect.