China’s home-grown DUV progress not the biggest threat to ASML, analysts say

China’s home-grown DUV progress not the biggest threat to ASML, analysts say Western anxiety over a potential breakthrough in Chinese chipmaking gear may be rising, but home-grown machines are not the greatest threat facing industry leader ASML, according to analysts. Western anxiety over a potential breakthrough in Chinese chipmaking gear may be rising, but home-grown machines are not the greatest threat facing industry leader ASML, according to analysts. The Dutch firm’s shares fell more than 8 per cent at one point on Monday (Jul 27) in the US before closing down 5.8 per cent, after The Information reported that China had begun manufacturing home-grown immersion deep-ultraviolet (DUV) lithography machines through a state-backed company in Shanghai. China would produce about five DUV units this year and around 20 in 2027, The Information reported, citing anonymous sources. The first systems were expected to go to Semiconductor Manufacturing International Corporation (SMIC), Hua Hong Semiconductor and memory-chipmaker ChangXin Memory Technologies (CXMT), the report said. While the news fuelled a rally in lithography-related shares in mainland markets on Tuesday - sending Zhangjiang Hi-Tech, Yongxin Optics, Highly Group and Wavelength Opto-Electronic to their daily limits - industry observers urged caution over the reported advance. Delivering a domestic machine was not the same as qualifying it for continuous commercial production, said Paul Triolo, partner and technology policy lead at DGA-Albright Stonebridge Group. “Producing machines of the complexity of DUV immersion lithography that are commercially viable and running 24 hours, seven days a week, for an entire year is very difficult,” he said. Previous reports of Chinese progress in immersion DUV had proved false, and it remained to be seen whether the latest claims were valid, Jefferies analyst William Beavington said. Domestic capabilities in making such equipment would rise faster if home-grown machines were put into commercial production with major companies like SMIC and CXMT, he said. For now, Chinese fabs rely on imported equipment to expand their capacity. For example, semiconductor equipment imports into central China’s Anhui province, where CXMT is based, reached US$226 million in March, more than double the monthly average in the second half of last year, according to Bank of America. Lithography systems accounted for 57 per cent of the total, it said. Chinese fabs would have strong incentives to keep their more mature ASML systems running with access to maintenance, spare parts and technical support. “China will no doubt continue to buy ASML machines as long as it can due to their significantly superior quality,” Beavington said. A more consequential risk to ASML was the proposed Multilateral Alignment of Technology Controls on Hardware Act (Match Act) in the US, analysts said. Approved by the US House Foreign Affairs Committee in April but not yet brought to a full vote, the act would prohibit sales of immersion DUV systems to countries of “concern” and apply tougher restrictions on servicing and technical support at “key semiconductor manufacturing facilities”. “If the Match Act forced ASML to pull out its engineers, for example, Chinese immersion DUV efforts would be given a huge shot in the arm,” Triolo said. Cutting Chinese fabs off from the people needed to maintain their existing foreign tools would force them to accelerate their adoption of domestic equipment, which would in turn speed up its development, he said. Restrictions on American suppliers have already boosted localisation in other equipment categories. Bernstein Research estimated that China’s overall self-sufficiency in wafer-fabrication equipment rose to 21 per cent last year from 16 per cent in 2024. Domestic supply grew 67 per cent in deposition equipment and 37 per cent in dry etching, lifting localisation rates in the two segments to 27 per cent and 31 per cent, respectively, it said. China’s DUV efforts were not likely to produce a single company resembling a “Chinese ASML”, Triolo said. Instead, the evidence pointed to a state-directed systems-integration programme, with Shanghai Yuliangsheng Technology as a visible project vehicle, SiCarrier providing strategic coordination and links to Huawei Technologies’ ecosystem, and SMIC acting as a qualification platform, he said. Other companies, including Shanghai Micro Electronics Equipment, laser supplier Beijing Keyi Hongyuan Optoelectronics, wafer-stage developer Beijing U-Precision Tech and metrology specialist Amies Technology, could supply critical subsystems, he added. Such a structure would broadly resemble ASML’s own role of coordinating a deep network of specialist suppliers, rather than manufacturing every component itself. DUV lithography is the most sophisticated technology currently available to Chinese chipmakers, because the world’s most advanced systems - based on extreme ultraviolet lithography technology - are subject to export restrictions. This article was first published on SCMP.