The US government has approved the acquisition of Silicon Valley Group by the Netherlands' ASM Lithography, a deal which will create the world's largest supplier of semiconductor manufacturing tools and which could have far-reaching consequences for the computer chip industry. The government's Committee on Foreign Investment in the United States (CFIUS) had been scrutinising the agreement based on fears that it could endanger American national security by giving ownership of military-grade technology to a European country. A unit of Silicon Valley Group (SVG) was contracted by the US military in the 1990s. The European Union had said it was concerned that the US might block the deal without sufficient reason. ASML says it plans to close the £1bn deal in the next few weeks and will take six months to look for a buyer for Tinsley Laboratories, the controversial SVG subsidiary. If no buyer is found, ASML said it agreed to operate the lab under a set of CFIUS restrictions. Tinsley had revenues of $17m (about £11.5m) last year, or 2 percent of SVG's total revenues. ASML said last year it would buy SVG to create the world's biggest maker of machines that print circuits on computer chips, with SVG shareholders to get 1.286 new ASML shares for each SVG share, requiring the issue of 53.9 million new ASML shares. ASML is the world's second largest maker of scanners and steppers, machines which map out semiconductor circuitry on silicon wafers. ASML chief executive Doug Dunn maintained the company's position that the merger is less about cutting costs than driving the chip industry's ability to continue innovating. "We believe that the combination with SVG will further enhance our competitiveness and significant strength in the global lithography marketplace, providing more jobs both in the US and Europe and preserving strong technology development in the US," he said in a statement. Advanced semiconductor tools are vital to chip companies' plans to reduce the size of computer chip geometry, allowing more transistors to be packed onto chips with less power consumption and greater performance. Both Intel, which relies on equipment from SVG, and its arch-enemy AMD, which uses ASML tools, are currently reducing chip geometry from 0.18 microns to 0.13 microns. The advanced tools will become even more important at around the middle of the decade, when the current lithography technique -- called deep ultraviolet -- is due to run into a wall at .10 microns. The merger of ASML and SVG is thought to be crucial to making next-generation lithography equipment available and affordable more quickly. The next-generation lithography technique chosen by Intel, extreme ultraviolet (EUV), will allow the manufacture of chips with geometry of 0.07 microns and below, and running at 10GHz and faster. Today's microchips run at between 1GHz and 2GHz. Reuters contributed to this report. See Chips Central for daily hardware news, including interactive roadmaps for AMD, Intel and Transmeta. Have your say instantly, and see what others have said. Click on the TalkBack button and go to the Chip Central forum Let the editors know what you think in the Mailroom. And read other letters.