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Comment by rgalate | Hacker News Reader

The best explanation as to why ASML is so dominant is that they have locked out the best suppliers by signing exclusivity deals with them. If you want to compete with ASML you have to vertically build: the best lenses, the best lasers, the best metrology. A new entrant would need to replace ten different world-class vendors simultaneously. Unlike common business wisdom that dictates having multiple suppliers to mitigate risk, ASML succeeds by identifying the best supplier in the world for each critical component—such as Zeiss for optics or their specific metrology group—and securing exclusive, multi-year deals with them.

Dan Gelbart gives exactly this view in a podcast he took part: https://youtu.be/UTgrWmOk4q8?si=Zp13SPqN_Vx-kFlq&t=1564

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It does seem like the USG should fund a few $10B to build out the alternative stack, given the strategic sensitivity. Best time to have started would have been 20y ago, second best is today.

This is small change in the military budget.

The US Government made ASML dominant when it allowed it to acquire (US Company) Cymer, Inc.- the company that was best in the world at the time at EUV. Merging Cymer's EUV work with ASML's meticulous perfection and delivery of the entire rest of the system is what made them the only vendor that matters for semiconductor manufacturers.

This acquisition is also what gives the US Government the ability to veto customers of ASML even today- this is why Chinese semiconductor manufacturing is so far behind, because the USG controls who can access ASML's EUV work.

TIL! I had assumed that veto was purely diplomatic muscle.

That seems like a potentially very cunning soft takeover, in that case.

Still, I think onshoring is strategically wise in a world where the US is actively antagonizing the EU.

Why would the US need to fund and build out an alternative stack? ASML is de facto controlled by the United States.

Of course, having competitors is probably a good thing...

Carl Zeiss only has a €2.2B market cap. What stops someone from just buying all these world class vendors?

Carl Zeiss Meditec /= Carl Zeiss. $AFX is the publicly traded non-semis division. Carl Zeiss AG is the parent company which is private

Correct. Funny enough though, their corporate structure and the name AG means they do have stocks, but they are not traded and 100% privately owned. For some reason I see this often with German companies, e.g. the German railway. Not sure why that is, although for the railway plausible since they are owned by the state that might eventually want to sell parts of it.

I believe the two applicable options to have a company that counts as its own "person" is either AG or GmbH (~= LLC / "limited").

There is also SE which is a EU form for an AG, and various "partnership" forms that involve a partner that's fully liable. Usually, that partner is not an actual person but a "legal person", i.e. another SE or GmbH.

Even if you're not listed on a stock market, you might want to take on investments, e.g. "give me 10 million for 5% of the company" and I assume the latter is much easier with an AG.

Zeiss and Schott are both owned in their entirety by a foundation that is not allowed to sell shares. Most of the dividends go to larger research institutions in southern Germany (about $80 million to Heidelberg, Stuttgart, Tübingen, Freiburg, Ulm, Mainz, Jena).

AFAIK that’s how incorporated companies work in Europe.

Here in Sweden we have A LOT of companies own and operated by state and local government and they’re all “aktiebolag” which literally translates to “stock companies”. For smaller businesses you can register as a sole proprietor and some other odd structures if you are a group of people. You’ll often see the same thing for non-profits as well.

An AG corporation has stocks in order to track who owns how much and also attach different economic and voting rights to different classes of stock. The other way to incorporate a limited-liability company in Germany is the GmbH, which tracks ownership directly in the articles of incorporation, but are in other ways subject to way lower management, disclosure and accounting requirements. So the AG is mostly useful if you want it to be easy to change your ownership structure, if you for instance raise capital from new investors, issue employee shares, change cross-ownership within a conglomerate or go public some day.

Why Carl Zeiss is an AG I don't know. The West German Carl Zeiss was re-formed as a GmbH in 1946, but had changed to an AG by 1973. The East German Carl Zeiss was turned into a GmbH during reunification and then split in two. One part merged into the West German Carl Zeiss AG and the other is now called Jenoptik. Jenoptik was converted into an AG in 1996 and went public in 1998. AFAICT Carl Zeiss has been privately owned by the Carl Zeiss-Stiftung since 1889, except of course for the temporary East German part.

You create a German AG entity to make it easier to onboard new shareholders/offboard old shareholders.

In most entity types, this involves a lot of paperwork while its quite easy within an AG.

AG does not mean necessarily its publicly traded.

Isn't that commonly called anti-competitive practices?

yes, but it has been given the blessing by the western governments.

It would fall under the category of exclusive dealing.(1) Exclusive dealing is never per se illegal, but it can be as a matter of judgment before a court.

ASML would argue that it's legitimately justified because

  a) there is mutual coinvestment (ASML owns 25% of Zeiss semi optics division) and thus there is symbiosis / shared risk not a simple exclusionary supply contract
  b) no viable alternative customers exist for Zeiss so it doesn't matter
  c) EUV litho is so tightly coupled to optics that having a single supplier is a technical necessity
  d) the market was CREATED through innovation and investment across ASML and suppliers, rather than exclusionary conduct (cf. the difference between "a monopoly" and "monopolization")

The affordance of a monopoly also prevents free riding. ASML and Zeiss spent billions of dollars and decades co-developing very specific, custom-tailored technology. If a competitor could simply walk up to Zeiss and buy the lenses that ASML spent billions helping to develop, the competitor would be free riding on ASML's investment - and creating a chilling effect for future innovation.

(1) https://en.wikipedia.org/wiki/Exclusive_dealing

  b) no viable alternative customers exist for Zeiss so it doesn't matter

  c) EUV litho is so tightly coupled to optics that having a single supplier is a technical necessity

B can also be an argument against putting exclusivity into a contract.

C is just a business decision - exclusivity due to need, not contract.

Interesting. This observation only reinforces the hypothesis that my colleague had. Well optimized components procured with exclusivity.

> best suppliers by signing exclusivity deals with them

In the UK, if you are a supplier and lock in an exclusivity deal, and also you are small business, they don't treat you as legitimate business and company revenue gets taxed as employment income (IR35).

I wonder why regulators don't look into that. If they have exclusive deal, are they really in business or is it just some sort of tax structure masqueraded as supply chain?

It's hard to qualify Zeiss as a "small business". Also, they pay their own employees wages and deduct taxes and social insurance so it's not like they pretend to be an independent contractor to save some money.

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