The following editorial was provided by Peter Clarke, news director of Silicon Strategies.
LONDON -- The chipmaking equipment industry's biggest player, Applied Materials Inc., has been linked with ASML Holding NV, the industry's largest manufacturer of lithography equipment, in a Reuters article that quotes numerous financial analysts (see August 26 story)
Some of the business arguments for and against a radical consolidation of the equipment industry, and the need for Applied to spend its cash on major acquisitions in complementary activities, are presented in that article and elsewhere.
But there is another aspect to this potential mega-merger in the semiconductor equipment industry: a strategic one.
ASML works exclusively on lithography equipment. That is both its strength and its weakness. It's focus has earned it a leading position in the sector, but in July, while reporting a major loss and a 54 percent drop in sales for the quarter, ASML Holding NV announced plans to cut 11 percent of its workforce (see July 16 story).
ASML is not diversified and, unlike its Japanese rivals Nikon Corp. and Canon Inc., it may be finding it harder to weather the extreme economic swings of the semiconductor equipment sector.
And it is true that the equipment industry has undergone an exceptional and vicious downturn, with most companies enduring one or more rounds of major job cuts. While most are hopeful that significant capital spending by the fabbed semiconductor companies is imminent, many smaller equipment company shareholders may feel the good years are unlikely to be sufficiently profitable or numerous to make their endeavor worthwhile, prompting re-organization and consolidation.
There is already a sense that companies are being marked out as potential consolidators or being relegated to the ranks of those to be consolidated (see August 22 story).
Meanwhile the United States, with the sale of Silicon Valley Group Inc. (SVG) to ASML back in 2001 and with Ultratech concentrating on lithography for packaging and wafer bumping, effectively lost one of the keys to strategic control, or at least influence over the semiconductor industry.
When the sale of SVG was allowed to go through U.S. national security concerns had to be overcome (see May 22, 2001 story), but it may have been felt that the United States had a special relationship with the nations of continental Europe as well as with the United Kingdom. Europe probably seemed like a good home for a key supplier to U.S. commercial chip makers.
But U.S. politicians may have changed their position since then.
It is also noticeable that despite talk about export restrictions to China, U.S. companies control little of the technology that is key to making leading-edge semiconductors. Restrictions on U.S. companies seem to give sales opportunities to European and Japanese rivals and China is setting itself up to become a major manufacturer of leading-edge integrated circuits for world consumption just as Japan, Korea and Taiwan did before it.
For some, therefore the acquisition of the world's largest maker of lithography equipment by a U.S. company would mark a rolling back of the tide and the chance for the U.S. to have some strategic control over essential technology.
But, in the case of ASML, its shareholders may feel that as they have endured the pain of the downturn they now deserve to enjoy the gains of an upturn. They would likely prove highly resistant to takeover blandishments.
And the strategic nature of ASML's technology is very well understood amongst European Union bureaucrats and in the broader European community, which has supported financially numerous collaborative research programs involving ASML, Europe's major chipmakers, and other European equipment and materials companies. Coaxing, lobbying and inducements would likely come from these quarters for ASML to remain under European control.