Clash of the Giants: When Tech Titans Collide
It is always fascinating to ponder what happens when an irresistible force meets an immovable object. As boundaries between tech giants blur, the era of monopolized market segments is fading. Gone are the days when one giant ruled search, another reigned over social media, and a third dominated mobile phones. These behemoths have increasingly begun encroaching on each other's domains, pushing beyond competition into aggressive negotiations and intense legal battles. As they navigate a landscape where they often serve as both partners and adversaries—customers, suppliers, and rivals—the stakes have risen with continuous scrutiny from all stakeholders, given their size, stature, and importance to communities/host nations. Gone seem to be the days of soft diplomacy, even from historically compliant North Asian suppliers. This evolving scenario has produced some fascinating, high-stakes dramas, one of which has erupted into a major confrontation overnight. But before diving into the most recent episode, it's essential to recognize the unique dynamics at play in the only current true monopoly buyer-supplier arm-wrestling match: TSMC versus ASML.
TSMC vs. ASML: A Staring Game
The negotiation between TSMC and ASML is a textbook example of a potentially thunderous clash between a monopolist supplier and a near-monopsonist buyer. TSMC relies heavily on ASML's cutting-edge extreme ultraviolet (EUV) lithography machines for its next-generation chip fabrication processes, including the upcoming 1nm chips. However, each party is now caught in a high-stakes dance over the pricing of the latest high-numerical-aperture EUV equipment, with each machine costing upwards of USD 400 million.
The stakes are high: TSMC is pushing for cost reductions despite its exploding margins. Meanwhile, ASML, facing rising production costs, is determined to increase its prices to maintain profitability. Given their symbiotic relationship, such negotiations traditionally reach a mutually beneficial outcome, but this time around, there are twists.
The slowdown in other key markets complicates matters for ASML. With major buyers like Intel and Samsung scaling back, TSMC’s leverage over ASML has increased. ASML’s inability to sell to eager Chinese buyers amplifies the pressure to secure favorable terms from TSMC.
Adding to this complexity is the perception game. When TSMC delays its capital expenditure plans, markets interpret this as a sign of strategic maneuvering, potentially benefiting its margins through tighter capacity. Conversely, ASML, dependent on maintaining a steady flow of orders, faces heightened scrutiny each time such delays are announced.
This subtle interplay creates a situation in which, despite its technological indispensability, ASML appears to have ceded ground. The negotiations will continue between the two from one quarter to another, but it will be interesting to see how ASML rebuilds its own pricing advantages.
Qualcomm vs ARM: Time for the Parties to Get a Room
It is too early to say anything about the rapidly unfolding Qualcomm and ARM drama. ARM seems to have the upper hand if one simply thinks that they took the step of the cancellation notice. But at 11% of revenues coming from Qualcomm fees, ARM clearly cannot be thinking about chopping an arm to win a court case. Legal proceedings will likely dictate the next chapter, but legal decisions cannot be the path out, with both giants having too much to lose from a prolonged standoff. They do not have a choice but to reach out-of-court settlements or at least a compromise to keep other things going. Still, the headlines overnight promise a lot more drama. For all such symbiotic associations, Wintel provides the ideal template.
Microsoft and OpenAI - Not Exactly Wintel
Microsoft and Intel were not direct competitors but "complementors," as they relied on each other's technologies to enhance their products. Microsoft's Windows OS was designed to run on Intel's chips, while Intel developed new processors optimized for Windows, creating a symbiotic relationship. The legendary association lasted decades, benefiting both, but arguably Intel more than Microsoft in later years.
If anyone thought Microsoft and OpenAI would be similar, those hopes stand dashed. There is the brewing tension between OpenAI and Microsoft. Once collaborative partners, their relationship seems strained as OpenAI's rapidly expanding product suite begins to overlap with Microsoft's ambitions. OpenAI's generative AI tools have not helped Copilot and other products gain much ground, while its expanding range looks to compete with everyone, including Microsoft's products. It does not help that OpenAI is forming strong partnerships with some of Microsoft's biggest rivals.
Effectively, distrust has crept in. Microsoft seems upset about the delays in technology transfers and collaborations. OpenAI's transition to a for-profit organization has complicated financial arrangements.
Microsoft vs. Salesforce: Converging Technologies
At first, the splat created by the Salesforce CEO's open criticism of Copilot, likening it to Microsoft's outdated Clippy assistant, appears impolite at most. But there could be a lot more.
The main factor leading to the criticism was Salesforce's recent launch of its own AI solution, Agentforce, which competes directly with Microsoft's offerings. Microsoft was also about to enhance Dynamics 365, which competes with Salesforce's main CRM products. This is likely a precursor to similar spats emerging between players that were never seen as competitors with shifting competitive landscapes.
As we wrote in our previous piece, GenAI is lowering the boundaries that defined various sub-segments. LLMs allow companies to include and enhance features in their software products that were offered by software and applications of different domains in previous years. We have seen an explosion in products and features from all software companies in the last year, with the ever-easing software development and ever-rising capabilities of LLMs that are being incorporated by all.
In short, GenAI is transforming software into a more homogenized, more encompassing toolset, challenging and changing everything from office suites to design software. This is going to unsettle all incumbents. In the crowded new space, where small apps are already being made through text prompts, expect the giants to claw at each other much more.
Not everyone fights! Nvidia and Its Symbiotic Partnerships
In contrast to these clashes, Nvidia exemplifies how cooperation can be mutually beneficial. Nvidia has formed strategic alliances with TSMC and SK Hynix to advance AI chip technologies. This collaboration allows all parties to share in the success and growth driven by AI innovations. Unlike past monopolistic practices seen with companies like Apple, Nvidia ensures that its partners benefit financially from their joint ventures. The proof is in the margin numbers of the just-announced results of these companies. Evidently, there is enough pricing power for all to benefit and enjoy.
Conclusion: Navigating the New Competitive Landscape
As software companies increasingly invade each other’s territories—driven by rapid innovations like multimodal AI—the lines between once-distinct competitors continue to blur. The result? More boardroom battles between once-partners, now-rivals, with outcomes that could reshape entire industries.
In hardware, the reliance on each other is far more than before, and there will be disputes on the share of the spoils. Ultimately, these clashes showcase the growing complexity of the tech landscape, where the balance of power is not always clear-cut.
