Go or stay? ASML wades from geopolitics into domestic politics

Misha Lu, DIGITIMES Asia, Taipei 0

Credit: AFP

Following media reports that the Netherlands-based lithography equipment leader ASML is harboring thoughts to move its operations abroad, the country's political climate, especially the recent electoral victory of the far-right Party for Freedom (PVV), has come under the industrial spotlight.

Immigration was placed at the forefront of the debate – notably the famous 30% tax advantage for highly skilled immigrants that has recently been watered down. ASML, at the spearhead of Moore's Law, now finds itself at the spearhead of both geopolitics and domestic politics.

During an interview with Dutch media network RTL, ASML CEO Peter Wennink indicated that the company could be forced to move operations abroad if it cannot find enough qualified talent in the Netherlands. He added that "we will get those people in Eastern Europe or Asia or the United States. Then we will have to go there."

As reported by NL Times, ASML has over 9,000 non-Dutch employees in the Netherlands, representing roughly 40 percent of its 22,860 employees in the country. It also employs over 19,500 outside of the Netherlands, of which 8,225 are based in the United States, 9,100 are in Asia, and the rest are in Europe or the Middle East.

Spearheaded by the populist leader Geert Wilders, the PVV won 37 seats in the lower house of the Dutch parliament during a November election, shocking the European political establishment struggling with the rise of the far right in various major European economies. However, the PVV's 37 seats are short of a majority in the 150-seat House of Representatives, making coalition talks a key part of the government formation process.

Months have passed as the PVV negotiated with various parties in the Dutch political spectrum, including the outgoing governing party the People's Party for Freedom and Democracy (VVD), the New Social Contract (NSC), and the Farmer-Citizen Movement (BBB). Last week, however, Wilders abandoned his bid for Prime Minister, and negotiations turned toward a minority government with an extra-parliamentary cabinet.

Problems raised in the ASML debate are rooted in the outgoing government

"The topic is not just about ASML, but how good the Netherlands is for companies to settle," a source from the Dutch government told DIGITIMES Asia, "ASML has been growing abroad for a long time, so the frame of the discussion is a bit off." The source noted many of the problems raised in the ASML debate existed long before the latest parliamentary election, being a legacy of 10 years of outgoing Dutch Prime Minister Mark Rutte's government.

The source pointed out that the centrist party NSC was the one that passed the law taking away tax benefits for expats. The tax benefit refers to a ruling that allows Dutch employers to give highly-skilled immigrant employees 30% of their salary tax-free for up to five years.

However, the ruling was amended and became effective on January 1, 2024. Under the new ruling, the tax benefit will still apply for a maximum of five years, but the employer must reduce the benefit in the course: 30% for the first 20 months, 20% for the next 20 months, and 10% for the remaining 20 months.

A source familiar with the Dutch government observed that the tax benefits reduction is not primarily aimed at limiting immigration, but at limiting what some politicians regard as market-distorting effects on home rental prices from such tax benefits. At the same time, a source familiar with Eindhoven's semiconductor ecosystem believes that ASML "will not move anytime soon," and that the issue is blown up to "put pressure on the politicians."

"ASML never said it would move – they said they would invest more abroad." The observation is shared by another source close to the Dutch government who believed that the lithography machine leader wouldn't quickly relocate, "as there is an entire chain of suppliers attached to it that couldn't be easily moved." However, as the source noted, expanding abroad could be an option, and government assurances are needed.

In response to ASML's potential relocation, the caretaker Dutch government has launched a cross-ministry effort known as Operation Beethoven (Operatie Beethoven) to tackle the issue. However, Peter Wennink is reportedly not entirely convinced.

As reported by various Dutch media, the ASML CEO was frustrated when five out of six Dutch members of parliament invited to a conference on the Dutch startup investment environment failed to show up. The ASML leader perceived the absence as a lack of interest from policymakers to keep and grow innovative companies in the Netherlands.

"We need to reach the conclusion that we can grow responsibly in the Netherlands, and we have not come to that conclusion yet," noted Wennink at the State of Dutch Tech 2024. Furthermore, he perceives a gap between the business world and the government regarding what is necessary, and a source from the Dutch government noted that preferential treatment to ASML is unlikely despite sectors such as semiconductors being prioritized.

As reported by the Dutch BNR Nieuwsradio, the ASML CEO expressed concerns about the adjusted 30% tax ruling and the housing crisis. "Seventeen out of the 27 member states have a ruling that we initiated, but then we abolish it?" Wennink reportedly said.

When it comes to housing, he also inquired "Where will people live if we want to hire another 20,000 people in Veldhoven?" In February, ASML just announced two initiatives that would create hundreds of affordable homes in the Eindhoven region.

Carving a geopolitics-proof path forward

"Twenty years ago Shell was 60% Dutch-40% British, and Unilever was 50% Dutch-50% British. Today both are fully British, and their head offices are consolidated in London. Philips, the third of the traditionally leading corporations in the Netherlands, has significantly downsized," remarked Frans-Paul van der Putten, a geopolitical analyst from ChinaGeopolitics and the former head of the Netherlands-based Clingendael China Centre, to DIGITIMES Asia. "For a small country such as the Netherlands, having major companies is an important contribution to its international influence, and its strength in innovation."

"ASML is the only Dutch enterprise that is very large by international standards. Given the company's rapid growth and already strong presence in the Netherlands, I don't see a problem from a geopolitical point of view if it expands some of its activities abroad rather than in its home country. The company is already highly dependent on international supply chains," noted van der Putten. "However, the Dutch government should keep ASML Dutch, its head office, and part of its R&D and production capacities, in the Netherlands. Doing so requires keeping the country attractive to highly educated foreign workers, and protecting Dutch companies from foreign political pressure."

With France and Germany being raised as possible future operation sites for ASML, what could be the implications of the US export restrictions affecting the lithography machine maker? Under Washington's diplomatic pressure, the Dutch government announced new export restrictions in June 2023, targeting advanced deposition and immersion lithography systems.

The regulations came into effect on September 1, 2023, after which ASML will need to apply for export licenses with the government for all shipments of its TWINSCAN NXT:2000i and subsequent immersion systems. In January 2024, it was revealed that the Dutch government had partially revoked an export license shipping some of ASML's lithography machines falling into the aforementioned range.

"If ASML would set up major production facilities in France or Germany, then future US attempts to further restrict the company's exports to China could meet with broader resistance from within the EU rather than just from the Dutch government," observed Frans-Paul van der Putten. "This would probably not change anything regarding the restrictions that ASML is already facing, and would ultimately also not protect it from potential additional restrictions initiated by the US government," added the analyst, "but it could raise the political cost for the US to impose or demand future restrictions on ASML and other EU semiconductor companies."