In the Netherlands, there is a company whose single product plays a massive role in influencing the modern geopolitical maneuvering of all countries around the globe and whose potential disruption could lead to massive disturbances in the global supply chain. ASML is the largest and most technologically advanced producer of machines vital to creating the microchips that power phones, laptops, and more.
ASML was created in 1984 when electronics manufacturer Phillips and chip maker Advanced Semiconductor Materials International (ASMI) teamed up to create a company to research and develop lithography machines for the growing semiconductor market. However, this market was hard to penetrate, and ASML almost went bankrupt.
However, in the 1990s, ASML received an injection of capital with the development of their PAS 5500 machine, which persuaded key customers to buy from them and turn a profit. As time went on, ASML kept on improving its systems, and with the acquisition of multiple companies, ASML was able to grow and become the world leader.
ASML’s market cap was 361 billion USD as of May 2024, and last year, they earned 27.5 billion USD from their worldwide sales. These numbers are significantly higher than any of their competitors. This is due to ASML’s 80% market share overall, 90% market share in immersion lithography technology, and 100% market share in Extreme Ultraviolet (EuV) lithography. They are also projected to keep this lead as competitors such as Nikon Corporation and Canon Inc. need more funds to compete.
As the sole proprietor of the most advanced and up-to-date technology to create microchips, whoever has access to it has massive leverage as the technology is pertinent to every facet of daily life. This fact explains the espionage acts by employees to gain the technology required to produce these machines for foreign nations and why the Netherlands and Europe are fighting to protect the company’s integrity.
The US also has a vested interest in keeping the technology from other countries as it ensures the US and its allies always have a technological lead and the ability to produce these machines, especially during tense geopolitical times.
This status gives ASML a respected status among countries. However, the Dutch benefited the most from this arrangement. The relationship between ASML executives and the Dutch government is symbiotic. The Dutch government gives massive tax breaks to the tech company. In 2015, it was reported that ASML paid 77 million euros in taxes while earning 1,3 billion euros in revenue. In turn, ASML opened almost 40.000 highly skilled and high-paying jobs and increased the economy of Eindhoven.
Recently, ASML signaled to the Dutch government that it planned to move some of its production from the Netherlands. Their stated reason was the lack of housing for recruits due to the housing crisis, the phasing out of tax cuts for skilled expat workers, the increased taxes on stock buybacks, and increased taxes for companies. ASML disliked these regulations. They planned to move parts of the production process to other European countries, or Asia deemed more business and expat-laborer-friendly.
ASML leaving would be bad for the Dutch. Their offices in the Netherlands could see mass layoffs, which will increase unemployment. The disappearance of ASML would significantly affect the city of Eindhoven as a big source of income would disappear, and the Netherlands would lose its bargaining chip. As those who live near the headquarters leave, it will cause a ripple effect on other businesses, furthering the destruction of the supply chains.
ASML leaving the Netherlands and moving would also mean trouble for the global market. As moving takes time, the machines being built will be delayed, and in this interconnected world, even a few hours could cause significant troubles for the global supply chain. During COVID-19, when companies struggled to produce hardware for laptops and graphics units after demand rose due to lockdown rules, there was an increase in prices for electronics and delays. Cars were delayed as there was a shortage of chips to manufacture cars.
The Dutch government is not blind to these adverse possibilities and has started talks with ASML. According to the Dutch newspaper De Telegraaf, the codename for government efforts to keep ASML is “Beethoven.” These efforts include the personal intervention of Dutch Prime Minister Mark Rutte and Minister of Economics Affairs Micky Adriaansens in doing talks with ASML CEO Peter Wennink. Several meetings have occurred between the government and ASML, and the current business climate has been discussed thoroughly.
From these discussions, some promises have been made to ensure that ASML stays in the Netherlands. Five hundred million euros worth of funds have been allocated and pledged to improve the Eindhoven area, and up to 800 million euros are to be invested from the Dutch national growth funds. These funds are hoped to increase the housing supply and improve the general infrastructure in Eindhoven and surrounding areas to facilitate ASML’s growth.
However, the topic of lowering taxes for the expat workers and lowering taxes for the company is still a matter of debate. The laws regarding the retrenchment of expat taxes and general increase in taxes have been signed into law by the Dutch government. This law was part of the prime minister’s agenda to increase the minimum wage and benefits. This topic requires them to find another solution that is still being discussed.
A possible solution was an increase in value-added tax (VAT) for goods and services that were once capped at 9%, increasing the gifting and inheritance taxes, increasing the notional rental value, and many more tax increases are planned to get the investments necessary to keep ASML in the Netherlands. These increases will come at a high premium to the average Dutch household, which has seen increased gas and electricity prices due to the war in Ukraine, instability in the Middle East, and local government policies that have impacted the cost of goods and utilities.
As of April 22, 2024, discussions are on the way. Interim Dutch Minister of Finance Marnix van Rij is being tasked with finding a solution to the issue. The government has only agreed with the funding of Eindhoven University of Technology for more housing capacity and to train more skilled laborers. They await the formation of a new cabinet so that it can be further debated and voted on in parliament.
The reaction from the Dutch population is relatively mixed. Most people understand ASML’s importance for the Dutch economy. Thus, they are willing to back Beethoven as long as the tax increases don’t increase prices much.
In conclusion, ASML is an essential figure in the modern technological landscape, and its significance extends far beyond the borders of the Netherlands. ASML’s impact on the world cannot be overstated, especially with its pivotal role in geopolitics and the global supply chain for electronics. The recent news about its relocation highlights the thin balance between economic incentives and societal interests as the Dutch government fights to retain ASML within its borders. The outcome of these negotiations will shape the future of ASML and will have a global impact on the economy.
