China begins producing DUV lithography machines, sending semiconductor equipment stocks tumbling

Reports that a Chinese state-owned enterprise has begun mass-producing deep ultraviolet (DUV) lithography machines for semiconductor manufacturing sent shares of ASML and other global semiconductor equipment makers tumbling Monday. The news fueled concern that China is closing in on domestic production of a critical chipmaking tool despite US export controls, potentially threatening ASML's sales in the Chinese market.

Bloomberg and Reuters, citing The Information, reported Monday that a Shanghai state-owned company has started producing immersion DUV lithography equipment and has recruited research and development personnel from Chinese semiconductor equipment startup Yuliangsheng, among other firms. The name of the state-owned company was not disclosed.

ASML shares tumbled 8.4% on the news. European and US semiconductor equipment stocks fell in tandem — ASM International dropped 7.3%, BE Semiconductor fell 9.9%, Applied Materials lost 6.7% and Lam Research declined 7.9%.

According to The Information, the company is targeting production of five DUV machines this year and about 20 next year, though the production technology is still at an early stage. Chinese media outlet Sina Finance reported that the machines produced this year are slated to be supplied to Chinese chipmakers including SMIC, Hua Hong Semiconductor and CXMT.

Analysts say Chinese-made DUV equipment is not yet at a level that poses an immediate threat to ASML's competitive position. DUV lithography machines are essential for etching fine circuits onto silicon wafers, and ASML alone shipped 131 immersion DUV units last year. China's production capacity, by contrast, remains extremely limited.

A performance and reliability gap also persists. Chinese DUV machines still fall short of ASML products in manufacturing quality and performance. Most components have been localized, but some critical parts are reportedly still sourced from Japan. Delays from domestic component suppliers are also pushing back this year's production schedule.

Even so, the reports are being read as a signal that China is making progress toward semiconductor self-sufficiency despite US export controls. Washington has banned exports of advanced EUV lithography equipment to China outright and has also restricted sales of the most advanced immersion DUV machines. The equipment ASML currently supplies to China is eight generations behind its latest models.

China was nonetheless ASML's third-largest market in the second quarter, and the Dutch company recently secured agreement to raise prices on some lower-end DUV product lines for Chinese customers by about 10 percent.

The Financial Times previously reported that SMIC, China's largest foundry, began testing a DUV lithography machine developed by Shanghai startup Yuliangsheng last year.

Yuliangsheng, believed to be the entity behind the state-owned company, was added to the US Commerce Department's export control list in December 2024.

China is also developing its own EUV lithography equipment, though that effort remains at the prototype stage and is expected to take several more years before reaching actual operation.

"As the United States tightens regulations on lithography equipment exports and maintenance services, this technological development could give Chinese chipmakers an alternative source of supply for critical equipment," The Information said.