The Dutch government successfully retained the giant ASML, but the hero is not it.

Eindhoven, the Netherlands, is a small city with a population of just over 200,000, best known for its Eredivisie football team of the same name. However, it is also a place where technology and politics intertwine year-round.

On April 22, ASML, the world's largest manufacturer of lithography machines, announced its intention to expand in the Eindhoven area near its headquarters in Veldhoven, planning to explore a relatively underdeveloped area near the northern airport of Eindhoven, with an estimated capacity for 20,000 new employees.

This means that the rumors of "ASML leaving the Netherlands" that have been circulating for over a month are officially coming to an end.

Thanks to ASML's dominant position in the lithography machine market, with a market value of $350 billion, it is a pride of the Dutch business community and one of the largest technology companies in Europe. However, with the aging of the business infrastructure in the Netherlands and the government's increasingly anti-immigrant policies, the future of ASML in the Netherlands has become uncertain.

Some speculate that ASML's next stop will be France, the home country of the newly appointed CEO Christophe Fouquet, who took office on April 24; others believe that since ASML relies on the technology of the German company ZEISS, going to Germany would also be a good idea.

On the other hand, the United States is also pressing hard, constantly demanding that ASML weaken its ties with its largest customer, China. First, it banned the export of the most advanced extreme ultraviolet (EUV) lithography machines, and then extended its reach to some models of the next-level deep ultraviolet (DUV) lithography machines. In April 2024, Reuters reported that the United States also hopes ASML will stop providing maintenance services for some equipment in China. This has also attracted high attention in China, with some netizens even calling out, "Come to China!"

However, René Raaijmakers, the author of "The Giant of Lithography: ASML's Road to Rise," a Dutch technology writer, admitted to "Jiazi Light Years," "ASML is a European company, but it can also be seen as an American company. The Dutch government pretends to have control over ASML, but the Americans always have the final say."

"Move to China? Americans will never allow that to happen," Raaijmakers said.

1. "Beethoven Action"

ASML is an indispensable equipment supplier for manufacturing advanced chips. In terms of sales, the company's market share in the lithography machine market exceeds 80%, and in the most advanced extreme ultraviolet (EUV) lithography machine market, ASML's market share is 100%.

The three major semiconductor giants, TSMC, Samsung, and Intel, all rely on ASML's EUV lithography machines to produce flagship products with a process node of 7nm or below. The system is priced at around $180 million and requires multiple planes for transportation. The latest High Numerical Aperture (High NA) EUV lithography machine delivered to Intel in December 2023 has a price tag of up to $380 million.

The Netherlands, known for its windmills and tulips, has always been a European Union country eager to embrace foreign talent. As a result, ASML has attracted talent from around the world. With 23,000 employees locally, over 40% of them are foreign employees without Dutch nationality. However, with the expected right-wing policies to cancel tax subsidies for foreigners and reduce the number of foreign students, ASML's talent recruitment may be in trouble, which has become a direct cause of ASML's exodus.

Leading ASML for ten years, recently retired CEO Peter Wennink announced in early March 2024 through The Guardian: "We can only develop this company with enough qualified talent. We prefer to do this here (in the Netherlands), but if we can't find these people here, we will bring them elsewhere, to Eastern Europe, Asia, or the United States."

Based on these remarks, speculations from the outside world have come roaring in. The United States and China appear on the potential list, but the possibility of other EU countries is much greater.

However, due to the lack of suppliers, a smaller customer base, and higher costs in these EU countries, relocation is impractical. Regimeck pointed out, "ASML has never had a strategic need to establish an office in another country, nor has it ever threatened to do so."

However, Regimeck believes that ASML is indeed seeking to expand its business outside the Netherlands, mainly driven by costs. It may do more processing at suppliers or transfer assembly to Asia. Some of ASML's suppliers (such as Neways, KMWE, and VDL ETG) have already operated in Malaysia or Vietnam, so he expects ASML to eventually produce cheaper machines in Asia as well.

Nevertheless, the Dutch government still shows "anxiousness." Several government departments jointly launched the "Beethoven Action" worth $2.7 billion, invested in infrastructure improvements in the Eindhoven region, trying to retain ASML.

It seems that this special action born out of the government's desire to show its value for the technology industry has already played its due role.

This is not the first time the Netherlands has faced the loss of a multinational giant.

In 2020, consumer goods giant Unilever changed its long-standing dual headquarters structure in the UK and the Netherlands to unify its headquarters in London, UK; in 2021, Shell also decided to relocate its company headquarters from the Netherlands to London and removed the "Royal Dutch" from its company name.

It is reported that the apparent reason for Shell's move to the UK is dissatisfaction with the Netherlands' environmental policies and to simplify the company's structure. However, the Financial Times believes that Shell also sees the prospects of the UK economy and hopes to give shareholders a more generous return.

Behind the rumors of ASML leaving the Netherlands, there may be another consideration.

2. Between China and the United States

In the widely circulated statement, ASML's potential relocation is to escape the export restrictions imposed by the United States.

Since 2019, ASML's most advanced EUV lithography machines have been difficult to export to China. In March 2023, under long-term pressure from the United States, the Netherlands officially joined the US in restricting exports of semiconductor equipment to China. On September 1 of that year, the new regulations on the export control of semiconductor equipment in the Netherlands came into effect.

In addition to fulfilling existing orders, from January 1, 2024, ASML will basically no longer obtain export permits for high-end products for Chinese customers, including EUV lithography machines and DUV lithography machines with models NXT:2000i and above.

To cope with these threats, many Chinese manufacturers hoarded goods in the third and fourth quarters of 2023, but these orders will also gradually be exhausted. It is expected that export restrictions will reduce ASML's total sales to China by 10% to 15% in 2024.

In the face of this situation, the benefits of moving to other EU countries gradually emerge: after moving to France or Germany, the EU will have to take on greater responsibility and influence over the US-imposed export restrictions on ASML.

Wennink, who just retired, called for a unified EU export control standard in January this year, rather than maintaining 27 standards according to the number of member states. This is more likely to protect European companies like ASML from being influenced by the United States.

European technology media Bits & Chips also believes that as the second French CEO of ASML, Fuche's nationality will bring additional benefits. Although he may not have a smooth relationship with the Dutch government, "his French heritage may be helpful on the international stage where geopolitical storms continue to rage."

"France symbolizes a proud Europe, so when it comes to restraining American interference, such as export restrictions, the new ASML CEO will definitely find the French president standing by his side," the media wrote.

However, Dutch geopolitical expert Dr. Frans-Paul van der Putten told "Jiazi Light Years" that ASML's desire to maintain close ties with suppliers means that it is more willing to keep its main business in the Netherlands. Germany's Zeiss is one of the main suppliers, but the Netherlands also has a large supplier network. The closer the distance to Zeiss or any other foreign supplier, the farther the distance from Dutch suppliers.

"The two most influential EU countries internationally are Germany and France. In theory, for a European company to achieve joint ownership at the EU level, it needs to have 'dual nationality' of France and Germany, and ideally also needs to spread its main business to all EU regions. But in practice, this is almost impossible. Considering the economic competition between France and Germany, and compared to staying in other EU countries, just being a German company or a French company may not necessarily receive more collective political protection at the EU level," van der Putten pointed out.

Zhang Binlei, research director of Chip Insight, also told "Jiazi Light Years" that when ASML relocates its headquarters to other countries or builds new factories, cost considerations are one aspect, but not the main one. It is more about putting pressure on the Dutch government, hoping for more shelter. However, the Dutch government is relatively weak in Europe and lacks independence. The United States may continue to escalate export restrictions, and may even require that all immersion lithography machines not be sold to China in the future.

"ASML hopes to give the Dutch government some pressure through (proposing to relocate the headquarters), at least to ensure that all DUV equipment can continue to be open to the Chinese market," Zhang Binlei said. "But even if it really relocates to Germany and France, it may not necessarily achieve this effect. Although Germany and France have strong discourse power, in many strategic considerations, they are also on the same boat as the United States, so (leaving) is just a manifestation of pressuring the government."

In fact, from a small company affiliated with Philips to the leading lithography giant today, the United States has always played the most important role in ASML's 40-year rise.

3. Not just a Dutch machine?

In 1984, the Dutch Eindhoven-based electronic giant Philips and the semiconductor equipment company ASM International, which had just transformed from an agent to a manufacturer, jointly invested in the establishment of ASML.

In a simple wooden house outside the Philips building, 31 employees began their entrepreneurial journey. They faced a market dominated by giants such as Nikon and Canon, as well as an uncertain future.

In the early 2000s, ASML faced a crucial decision: whether to continue developing dry lithography technology or to switch to the immersion lithography technology invented by Lin Benjian, a former R&D deputy manager at TSMC. After careful consideration, ASML chose the more innovative latter, and its market share in lithography machines rapidly surpassed Nikon, ultimately becoming the industry leader.

However, choosing a certain technological path does not guarantee success.

Zhang Binlei emphasized, "ASML's success in the lithography machine race is due to the choice of immersion lithography machines, but it also depends on Intel, TSMC, and Samsung choosing their equipment. So why don't these factories support Japanese companies? In fact, under the guidance of the United States to suppress Nikon and other Japanese manufacturers, major wafer factories actively embraced immersion lithography machines, which helped ASML establish a monopoly position."

In the development history of EUV lithography technology, 1997 was crucial. That year, Intel and the U.S. government jointly established the "EUV LLC" organization to promote the research of extreme ultraviolet lithography technology. At the same time, Intel believed that ASML and Nikon had valuable experience in the lithography field and should be members of the organization. However, the White House had concerns about the participation of foreign companies.

Faced with this opportunity, ASML made a commitment to the United States: willing to invest in building factories and research centers in the United States and guarantee that 55% of the raw materials would be purchased from the United States in exchange for the opportunity to participate in EUV technology research. This strategy successfully made ASML one of the only two non-U.S. companies in EUV LLC, with the other being the German company Infineon.

Meanwhile, Nikon was excluded because of the "possibility of bringing the technology back to Japan."

Over the next six years, researchers at EUV LLC published a large number of papers, promoting the development of EUV technology. After 2003, members began independent research and development work. ASML continued to lead the development of EUV technology in Europe until 2010 when ASML successfully delivered its first EUV lithography machine.

"In recent years, the successive generations of EUV equipment cannot rely solely on ASML's independent research and development," Zhang Binlei pointed out. "ASML needs to continuously collaborate with wafer factories on the production line. After the prototype is completed, it is sent to the wafer factory for optimization. These customers are also major shareholders of ASML."

In 2009, Cymer, located in San Diego, USA, developed the high-power light source required for EUV technology and became a supplier to ASML. Four years later, Cymer was acquired by ASML for $2.5 billion, further consolidating ASML's leading position in the core components of lithography machines.

To this day, ASML continues to maintain deep cooperation with the United States. An employee who has worked at ASML's U.S. branch for more than 4 years told "Jiazi Light Years" that the Silicon Valley branch has about 1000 employees, mainly from mainland China, Taiwan, India, and the Netherlands. The branch focuses more on semiconductor quality testing business and has close interactions with the Netherlands. For example, some R&D projects require data or existing solutions from the Netherlands, and the Netherlands also needs products from the United States.

"As a member of the European Union, the Netherlands values doing business well and selling technology products. ASML is also a very important company for the Dutch. But for the United States, it also has some (such as Cymer) technology in ASML's machines, and it can even be said that the United States accounts for 30% of the machine. So, this machine is not just for the Dutch. I feel that ASML must also listen to the opinions of the United States, and it is indeed a bit awkward for it to be caught in the middle," the aforementioned ASML employee said.

"Without the critical machine components manufactured in the United States and American technology, ASML cannot operate at all. Ultimately, Americans have all the control, not to mention that ASML's top ten shareholders are all related to the United States," Reggie Meek added.

On ASML's official website, it only mentions two major core shareholders: the American Capital Research Management Company, a subsidiary of Capital Group, one of the world's largest funds, and the also American BlackRock Group.

The Transition Period of Semiconductors

The development of the semiconductor industry is not only related to technological progress, but also to the pulse of the global economy. With the acceleration of digital transformation, chips have become the cornerstone of modern society, and everything from smartphones to cars, from data centers to industrial automation, relies on the advancement of semiconductor technology.

With the rapid growth of the global chip industry, ASML's stock price has risen by nearly 350% in the past 5 years, and its market value has increased to about $350 billion. Even though the chip industry has experienced two cyclical downturns and the COVID-19 pandemic, its revenue has continued to grow at a compound annual growth rate of 20%.

But under the shadow of export controls, does ASML still have the opportunity to transform into a trillion-dollar company like NVIDIA?

On April 18th, after ASML announced its first-quarter performance, its stock price fell by 6.4% on Wednesday. The net order volume (including orders placed by customers but not yet delivered) decreased from 9.2 billion euros in the fourth quarter to 3.6 billion euros in the first quarter, falling below analysts' forecast of 5 billion euros. The number of new and second-hand lithography systems sold by the company in the first quarter was 66 and 4 respectively, a significant decrease from the previous quarter's 113 and 11.

However, ASML describes 2024 as a "transition" period during which the company will continue to invest in technology and increase production capacity.

Zhang Binlei stated that the expansion of the global semiconductor equipment market is not as fast as in the previous two years. The amount of ASML equipment purchased in the European and American markets, as well as the Japanese and Korean markets, is declining. The outstanding financial performance in the last two quarters of last year was largely due to concentrated deliveries in the Chinese market. When domestic orders return to normal speed and the European and American markets have not yet recovered, this quarter's financial report will show a downward trend, which is expected to continue into the second and third quarters of this year.

It is reported that ASML is considering significantly increasing its production capacity through overseas expansion in the next few years. By 2025 to 2026, ASML may expand its manufacturing capacity to 600 DUV lithography machines and 90 EUV lithography machines annually, and by 2027-2028, it will also manufacture 20 High NA EUV lithography systems each year.

Dr. Vanderboden emphasized that ASML is a highly international company, but it is not "half American, half European": "It was established through the collaboration of two Dutch companies and is firmly rooted in the Netherlands."

However, in the complex political landscape, the semiconductor industry rooted in international cooperation, represented by ASML, may face even greater challenges.

ASML's new 50-year-old CEO, Fu Kai, stated to the media last year: "Sooner or later, people will realize that the only way to succeed in the semiconductor field is through cooperation."

*Reference materials:

"Dutch ministers trying to stop tech firm ASML moving abroad over foreign labour fears," The Guardian

"ASML wants to move out of the Netherlands to France. But why is China so eager?" Firstpost

"Top tech boss tells EU: Tool up for global trade fight," Politico

"Go or stay? ASML wades from geopolitics into domestic politics," Digitimes

(Cover image: High NA EUV lithography system, source: ASML)