When does control of an important input become control of a market?
Quantum computing and defense are key factors.
Last month, the FTC granted early termination of its investigation into IonQ’s acquisition of SkyWater, a semiconductor foundry that provides fabrication and development services used in quantum computing and advanced defense-relevant technologies. IonQ closed the $1.8 billion transaction the same day the agency cleared it, making SkyWater a wholly owned subsidiary. Clearly, the parties were ready to consummate the deal as soon as the antitrust obstacle was removed.
That defense dimension is central to the story: SkyWater was not merely another technology supplier, but a domestic foundry with government and defense-related work in a field the federal government increasingly treats as strategically important. See the side bar,“About the Companies.”
Antitrust enforcers spent several months examining whether IonQ’s ownership of SkyWater could affect competition in quantum-computing technologies. Still, for a transaction that received a Second Request, the matter moved quickly. WilmerHale, an inside-the-Beltway firm with a prominent antitrust, merger-review, and government-facing regulatory practice, described the clearance as “very fast” for a transaction that raised complex questions and received a Second Request. A more typical time frame would have been nine months to a year or more, according to the firm.
Quantum computing is drawing intense commercial and government interest because it may eventually solve problems that overwhelm conventional computers, including drug discovery, materials science, logistics, secure communications, advanced simulations, and defense and national security solutions. For antitrust purposes, the issue is who controls the hardware, software, networks, sensors, and specialized manufacturing inputs that could shape the next generation of high-performance computing.
Why SkyWater Drew FTC Attention as a Critical Input
SkyWater occupies an unusual position in the quantum-computing ecosystem, providing advanced semiconductor foundry services used by IonQ and other quantum-computing companies. Its importance is twofold: it may be critical to downstream competitors and critical to U.S. defense and national-security priorities. The Commission examined whether IonQ’s ownership of SkyWater could give it the ability or incentive to disadvantage competing quantum developers. In other words, could its foundry capabilities become a competitive chokepoint at which control over access, timing, price, or information could influence downstream rivals?
IonQ itself framed the deal in national-security terms, saying a U.S.-based quantum supply chain would help it support important defense programs and address critical national-security vulnerabilities. The Department of Commerce echoed the point, describing a strong domestic quantum ecosystem as essential to U.S. national security, technological resilience, and long-term strategic leadership.
The FTC’s questions addressed classic vertical merger concerns:
- Could IonQ restrict rivals’ access to SkyWater’s foundry services?
- Could IonQ gain access to competitively sensitive information about rival quantum firms?
- Would competitors have realistic alternative suppliers if concerns arose?
Inside the FTC’s Vertical-Merger Debate
The Commission still has only two commissioners, both appointed by President Trump, Chairman Andrew Ferguson and Commissioner Mark Meador, leaving three empty seats. The pair issued separate statements on the transaction, disagreeing over remedies and competitive concerns.
Ferguson believed the investigation showed enough short-term risk to justify a behavioral remedy, such as protections for rival access to SkyWater’s services.
Meador disagreed, saying the evidence did not justify intervention. “It is my view that the Commission lacks a reason to believe IonQ’s acquisition of SkyWater may have the effect of substantially lessening competition. In fact, there are more reasons to believe it will be procompetitive,” he wrote.
Meador effectively argues that national-security and industrial-policy considerations are reasons not to challenge the merger, citing billions in federal quantum investments and the strategic importance of domestic quantum manufacturing. That marks a notable shift from the traditional antitrust question: Will competition itself be harmed?
Neither commissioner wanted to sue to block the merger. Ferguson said he favored extra safeguards to protect a competitive quantum market because doing so would “protect President Trump’s substantial investments intended to secure America’s long-term quantum dominance.” But he also recognized the potential benefits of a robust domestic quantum-computing industry. Without a majority favoring a remedy, the pair deadlocked and opted for early termination—or, as Ferguson put it, to “get out of the way.”
Also noteworthy: Despite repeated references to national security, the statement does not say the Department of Defense approved the merger, requested approval, or participated in the FTC’s decision.
The review may signal how the current FTC will evaluate vertical mergers involving specialized technology inputs, especially when those inputs also support defense or other strategic national priorities. The agency may recognize chokepoint risks, but outcomes will still turn on evidence of foreclosure, alternatives, efficiencies, and workable remedies. In this case, advancement of a technological and national-security priority was a leading factor in the outcome.
When Does an Input Become “Critical”?
The most significant lesson from the IonQ/SkyWater review may be that antitrust analysis increasingly focuses on practical marketplace realities rather than theoretical possibilities.
Competition agencies generally ask:
- How many alternative suppliers exist?
- How difficult is it to switch suppliers?
- How long would switching take?
- Are customers dependent on specialized facilities, technology, or expertise?
- Does ownership of the input create leverage over rivals?
Those questions extend beyond quantum computing. Semiconductor fabrication, cloud infrastructure, AI hardware, networking services, specialty materials, and other industrial inputs may all involve products and services that are difficult to replace.
When Does Pricing Power Become Market Power?
Control of a critical input can create leverage even without outright foreclosure. When buyers have few alternatives and switching costs are high, suppliers may gain power over pricing, contract terms, capacity allocation, and access.
For purchasers, the practical concern is often straightforward: If only a handful of suppliers can provide a product that is essential to operations, how much negotiating leverage remains when prices rise?
Why Business Purchasers Should Pay Attention to Critical Inputs
For buyers of critical products and services, the lesson is practical: competitive risk can arise not only from coordination among rivals, but from control over suppliers that customers and competitors cannot easily avoid.
The FTC found insufficient evidence that the IonQ/SkyWater transaction was likely to substantially lessen competition. But the review shows how antitrust agencies may assess bottlenecks as advanced technologies and supply chains become more specialized. For antitrust practitioners, businesses, and purchasers alike, the enduring question is simple: When does control of an important input become control of a market?
For more on this broader trend, read our related piece, “Beyond Antitrust: The Growing Role of National Security in Merger Review,” which examines how national-security and industrial-policy concerns are increasingly shaping merger review in advanced-technology sectors.
Edited by Tom Hagy, Editor-in-Chief, Mogin Law Blog. Send inquiries to info@moginlawllp.com.
Takeaways
The FTC treated SkyWater as a potentially critical input. The agency focused on whether IonQ’s ownership of a specialized semiconductor foundry could create a competitive chokepoint for rival quantum-computing companies.
National-security considerations played an unusually visible role. Both commissioners discussed the strategic importance of domestic quantum-computing and semiconductor capabilities, illustrating how competition analysis increasingly overlaps with broader policy concerns.
The clearance does not mean the concerns were insignificant. The review shows that regulators continue to scrutinize vertical mergers involving specialized technology inputs, but outcomes still depend on evidence of foreclosure risk, alternative suppliers, efficiencies, and the availability of workable remedies.
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About the Companies
IonQ and SkyWater sit in a technology market where antitrust, defense policy, domestic semiconductor capacity, and industrial strategy overlap. The defense industry, of course, routinely draws on former military and government officials. A common criticism regardless of which political party is in control is one of an adjoining “revolving door” between agencies and companies.
IonQ. IonQ is a Maryland-based quantum computing and quantum networking company that describes itself as a commercial leader in quantum technology. Its board includes Gen. John W. “Jay” Raymond, the first Chief of Space Operations of the U.S. Space Force, who joined IonQ’s board as the company emphasized government, defense, space, networking, sensing, and secure-communications applications.
SkyWater. SkyWater is a U.S.-based semiconductor foundry headquartered in Minnesota and now owned by IonQ. The company provides technology-development and fabrication services for commercial, aerospace, defense, biomedical, industrial, thermal-imaging, and quantum-computing customers, and has described itself as a trusted domestic supplier for U.S. government and defense programs.
Cerberus Capital Management. Cerberus is a large private investment firm with roughly $70 billion in assets under management and investments across credit, private equity, real estate, and operating businesses, including defense-relevant sectors. Its relevance here is governance: IonQ director Bill Teuber is a Senior Principal at Cerberus. Cerberus founder Steve Feinberg chaired the President’s Intelligence Advisory Board during the first Trump administration and later served as Deputy Secretary of Defense. Those facts do not make Cerberus a party to the transaction, but they help place IonQ’s board composition within the broader defense, intelligence, and advanced-technology ecosystem surrounding the IonQ/SkyWater deal.
FAQs for Business Counsel
What did the FTC review in the IonQ/SkyWater transaction?
The FTC reviewed whether IonQ’s acquisition of SkyWater could harm competition in quantum-computing markets by giving IonQ control over a specialized semiconductor foundry that serves both IonQ and other quantum-technology companies. The agency examined whether IonQ could gain leverage over rivals through access, pricing, timing, or competitively sensitive information.
Why can a vertical merger raise antitrust concerns?
A vertical merger combines companies operating at different levels of a supply chain. Antitrust concerns can arise when the merged company gains the ability or incentive to restrict rival access to an important input, obtain sensitive competitive information, or otherwise disadvantage downstream competitors.
When is a supplier a critical input?
A supplier may be considered a critical input when customers have limited alternatives, switching suppliers is difficult or time-consuming, specialized expertise or facilities are required, and ownership of the input could create leverage over competitors.
What is vertical foreclosure?
Vertical foreclosure refers to conduct that restricts or impairs a competitor’s access to an important upstream product or service. In the IonQ/SkyWater context, the concern was whether ownership of a key foundry could limit rival quantum companies’ access to manufacturing services they need to compete.
How can control over a semiconductor foundry affect competition?
Control over a specialized foundry can affect competition if the owner can influence access, pricing, capacity, timing, contract terms, or information. When customers have few alternatives, the foundry may become a competitive chokepoint that gives its owner leverage over rivals.
Why did the FTC clear IonQ’s acquisition of SkyWater?
The Commission ultimately found insufficient evidence that the transaction was likely to substantially lessen competition. Although the agency examined foreclosure and information-access concerns, the commissioners did not agree on the need for a remedy and neither favored suing to block the deal.
Why did the FTC commissioners disagree over the IonQ/SkyWater transaction?
Chairman Andrew Ferguson believed the investigation revealed enough short-term competitive risk to justify behavioral protections for rival access to SkyWater’s services. Commissioner Mark Meador concluded that the evidence did not support intervention and stated that the transaction was more likely to be procompetitive.
What happens when the FTC deadlocks in a merger review?
In this case, the FTC’s two commissioners disagreed on whether conditions were necessary, but neither supported a court challenge. Without a majority in favor of a remedy, the Commission deadlocked and granted early termination, allowing the transaction to proceed.
How does quantum computing affect antitrust analysis?
Quantum computing raises antitrust questions about who controls the hardware, software, networks, sensors, and specialized manufacturing inputs that may shape future high-performance computing markets. Regulators focus on whether ownership of those assets could affect competition or create market bottlenecks.
Why is quantum computing strategically important?
Quantum computing is widely viewed as strategically important because it may eventually enable breakthroughs in areas such as drug discovery, materials science, logistics, advanced simulations, secure communications, and defense-related technologies. Both industry participants and government agencies have emphasized its potential national-security significance.
What should business attorneys watch for in technology-sector vertical mergers?
Business attorneys should evaluate whether a transaction involves a specialized supplier, limited alternatives, high switching costs, access to competitively sensitive information, potential foreclosure concerns, pricing leverage, or other factors that could allow a merged company to influence rivals’ competitive opportunities.
How do Second Requests affect merger-review timelines?
A Second Request typically extends the merger-review process because it requires the parties to provide extensive information and documents for further investigation. Although the IonQ/SkyWater transaction received a Second Request, observers described the review as unusually fast for a transaction presenting complex issues.