China’s DUV lithography machine weighs on ASML shares

ASML shares fell sharply on Monday after reports that a Shanghai-based state-backed company had started limited serial production of China’s first domestically developed immersion deep ultraviolet lithography machine. The development marks a significant step for China’s semiconductor industry and raises fresh concerns over ASML’s long-term position in one of its most important markets.

The stock erased earlier gains of more than 2% before dropping as much as 6.6%. The decline also affected other semiconductor equipment makers, including Applied Materials, Lam Research and KLA Corp, reflecting investor concerns about future demand for Western chip manufacturing equipment.

According to a report by The Information, the Chinese company has begun producing immersion DUV scanners capable of manufacturing 28-nanometer chips using single exposure. By applying multiple patterning techniques, the systems could potentially support production at process nodes approaching 7 nanometers. The project reportedly brought together engineering teams from several Chinese technology firms to achieve this milestone.

Production remains limited at this stage. Around five machines are expected to be completed this year, with output projected to increase to approximately 20 units by 2027. The systems are expected to be delivered to Semiconductor Manufacturing International Corp (SMIC), Hua Hong Semiconductor and ChangXin Memory Technologies, while SMIC has reportedly been evaluating the equipment since September 2025.

China remains a critical market for ASML. According to Reuters, the country is expected to account for roughly 20% of the company’s revenue in 2026, making it one of ASML’s most commercially sensitive geopolitical markets. Export controls already prevent the Dutch company from selling its most advanced extreme ultraviolet (EUV) lithography systems to Chinese customers, leaving DUV equipment as its primary business in the country.

Reuters also noted that China’s domestically developed system still trails ASML in performance and reliability. Additional testing is required before any large-scale deployment, meaning ASML’s technological advantage remains intact for now. China is also working on an indigenous EUV lithography machine, although that effort is still at the prototype stage.

The announcement comes as Washington continues tightening restrictions on China’s access to advanced semiconductor manufacturing technology. In April, bipartisan lawmakers introduced the MATCH Act, legislation that would prohibit the sale and servicing of all immersion DUV lithography systems to major Chinese chipmakers, including SMIC, Hua Hong and ChangXin Memory Technologies.

If enacted, the legislation would effectively eliminate ASML’s remaining DUV business in China regardless of domestic technological progress. The emergence of a Chinese-made immersion DUV system therefore suggests Beijing is accelerating efforts to reduce its dependence on foreign semiconductor equipment ahead of potential new export restrictions.