Sources believe the Bush administration and ASML are now in discussions to pave the way for approval of the deal by early next week after a couple of unexpected delays and government reviews of the purchase. The sale of San Jose-based SVG to ASML in the Netherlands has raised some concerns about U.S. national security and protection of defense-sensitive technologies--such as advanced lenses that have been used on military satellites.

But if the Bush administration should surprise the industry and somehow block the merger, several companies will lose out in the deal--ASML, SVG, and Intel Corp., which has been heavily backing the acquisition as a way to guarantee that Silicon Valley Group's lithography tools continue to be viable. In some respects, Intel appears to have the most to lose if the deal is unexpectedly blocked.

For some time, Intel has been the most vocal supporter of the ASML-SVG merger, which would create the world's largest semiconductor photolithography company. The transaction has the backing of not only Intel but also the U.S. Semiconductor Industry Association (SIA).

In the past month, however, the merger has become steeped in controversy. SVG is the last major U.S. supplier of leading-edge exposure tools, and its Tinsley Laboratories unit has supplied lens-polishing technology for defense spy satellites in the 1990s. Consequentially, Congress asked for a 45-day review of the $1.6 billion stock acquisition, but after the initial period ended last week, U.S. Committee on Foreign Investment was unable to reach a consensus on the purchase and ASML ownership of Tinsley. President Bush and his administration asked for 15 more days to review the purchase, meaning a decision is expected by next Tuesday (see April 24 story).

But Intel has argued that the ASML-SVG merger is crucial to the U.S. chip industry. In fact, Intel chairman Andrew Grove and CEO Craig Barrett have repeatedly spoken out in favor of the merger.

While Intel appears to be altruistic about the health of the U.S. chip and lithography industries, the microprocessor giant may also have other important reasons for pushing the acquisition.

Behind the scenes, say sources, Intel actually brokered the ASML-SVG deal. And if so, the Santa Clara, Calif., company played matchmaker for good reasons: its entire manufacturing strategy could hit a major snag if the deal is blocked.

At present, Intel has two primary lithography tool suppliers--SVG and Nikon Inc. of Japan. And Intel would like to keep it that way, according to sources.

In fact, Intel, and to a lesser degree IBM Corp., are SVG's two major customers in advanced steppers and scanners. And both IBM Microelectronics and Intel have funded much of SVG's Lithography Division.

But for some time, SVG has repeatedly warned that it cannot survive in the long term based on its current size. The prospect of SVG going under leaves Intel and others exposed and vulnerable in next-generation technologies, according to observers. One way to protect Intel and others is to make SVG a part of ASML, which is already the world's second largest supplier of lithography to wafer fabs.

Some of the problems facing Intel are already beginning to surface. Last week, SVG disclosed that it would delay the shipments of its advanced 193-nm lithography tools by four months--a move that impacts Intel.

Intel is reportedly depending on SVG's 193-nm tools to help it quickly move its processors to the 0.13-micron technology node by year's end. But SVG's delays in 193-nm now threaten to slow Intel's technology migration (see April 27 story).

But perhaps an even larger and more important issue for Intel is next-generation lithography (NGL) and its technology of choice--extreme ultraviolet (EUV). According to proponents, EUV lithography promises to keep Moore's Law alive and well by enabling the production of ICs with 0.07-micron and below feature sizes in the middle of this decade.

It could also keep Intel one step ahead of the competition, most notably microprocessor rival Advanced Micro Device Inc.

Intel is the leading member in a U.S.-based consortium, called the EUV Limited Liability Co. The EUV LLC group also consists of AMD, IBM, Infineon, Motorola, and U.S. government labs.

Both SVG and ASML are among the "system integrators" participating with EUV LLC consortium. In other words, these two companies are separately licensed to build and sell the initial EUV tools, based on the consortium's technology.

But some analysts suggest that Intel wants ASML to take over SVG to help accelerate the availability of EUV tools. SVG has key EUV optical technology, while ASML is considered a strong platform manufacturer, according to these analysts.

Intel has said it would like to see EUV tools available by 2003, but systems may not be ready for wafer fabs until 2005--or perhaps later (see April 11 story). In any case, Intel is expected to order the first EUV tools, possibly from the merged ASML-SVG company, if the U.S. doesn't stop the takeover.

Some industry observers believe Intel may be one of the few companies in the world that will be able to afford the first EUV systems. The EUV consortium claims the early exposure tools will cost between $15-to-$25 million per unit, but some lithography experts disagree and estimate that the price of early EUV systems will be as high as $40 million each.

Given the potential high cost of the tools, it's unclear whether most chip makers will have the funds to procure enough EUV systems for production fabs. The cost may be even too high for IBM, and possibly, Intel's archrival--AMD. That setback could push back the U.S.-backed EUV efforts. And so, it is possible that ASML's takeover of SVG could help to drive down those costs by leveraging technologies at both companies.

So one argument for the merger would be something like this: what's good for EUV is good for Intel, which is good for the U.S. chip industry.

It's almost certain that this kind of argument is being heard by the Bush administration. And if the odds makers on Wall Street are right, Intel will probably get want it wants--ASML ownership of SVG Lithography.