ASML stock sinks as China reportedly starts producing homegrown DUV chip machines

Shares of Dutch semiconductor equipment giant ASML fell sharply on Monday after a report said China has begun manufacturing domestically developed immersion deep ultraviolet (DUV) lithography machines, a milestone that could reduce the country's dependence on Western chipmaking equipment as export restrictions tighten.

According to The Information, the state-backed machines are expected to be delivered later this year to leading Chinese semiconductor manufacturers, including Semiconductor Manufacturing International Corp. (SMIC), Hua Hong Semiconductor and ChangXin Memory Technologies.

The report, citing people familiar with the matter, said production has already begun, although the identity of the manufacturer was not disclosed because of the sensitivity surrounding the project.

The development rattled investors across the semiconductor equipment industry.

ASML shares dropped more than 8%, while US-based chip equipment makers Applied Materials, Lam Research and KLA Corp also came under pressure, falling nearly 5%, almost 7% and 4%, respectively.

China targets a critical semiconductor bottleneck

Lithography machines are widely regarded as the most technologically challenging equipment used in semiconductor manufacturing because they print intricate circuit patterns onto silicon wafers.

ASML dominates the global market for advanced lithography systems and remains the world's only supplier of extreme ultraviolet (EUV) lithography machines used to manufacture the most advanced chips.

After US and Dutch export controls prevented ASML from selling EUV systems to China, Chinese chipmakers increasingly relied on the company's older immersion DUV machines.

Those sales became one of ASML's most important revenue sources from China as local manufacturers stockpiled equipment ahead of further export restrictions.

If Chinese companies are now able to source comparable DUV tools domestically, investors fear ASML's remaining business opportunities in China could gradually shrink.

Ripple effects spread across equipment makers

The selloff extended beyond ASML because investors interpreted the reported breakthrough as a broader threat to the global semiconductor equipment industry.

While ASML supplies lithography equipment, companies such as Applied Materials, Lam Research and KLA manufacture tools used in other critical stages of semiconductor production, including material deposition, wafer etching and defect inspection.

Market participants fear that if China succeeds in developing competitive lithography systems, it could eventually localise much more of its semiconductor manufacturing supply chain.

That, in turn, would reduce the long-term addressable market for Western equipment suppliers in China.

Production remains limited for now

Despite the breakthrough, the report suggested China's domestic DUV systems still trail ASML's machines in performance and reliability.

The technology requires further testing before large-scale commercial deployment, allowing ASML to retain a technological advantage in the near term.

Production is expected to remain modest initially, with approximately five immersion DUV machines scheduled for delivery this year and about 20 machines planned during 2027.

Immersion DUV technology currently represents the most advanced lithography equipment available to Chinese chipmakers following restrictions on access to EUV systems.

China is also developing a domestically produced EUV lithography machine, although that effort reportedly remains at the prototype stage.

Timing coincides with tighter US restrictions

The reported manufacturing breakthrough comes as Washington considers additional restrictions on semiconductor equipment exports and servicing activities involving China.

The United States Congress is advancing the MATCH Act, bipartisan legislation designed to further limit China's ability to purchase or maintain advanced DUV lithography equipment from foreign suppliers.

If China succeeds in producing viable domestic alternatives, the effectiveness of those proposed restrictions could diminish over time.

For Beijing, developing homegrown lithography equipment has become a strategic priority as geopolitical tensions continue reshaping global semiconductor supply chains.

Although the latest report does not suggest China has yet matched ASML's technological capabilities, it indicates that the country's long-term efforts to reduce reliance on foreign semiconductor equipment are beginning to produce tangible results.

For investors, Monday's market reaction reflected concerns that even limited domestic production could eventually alter the competitive landscape in one of the semiconductor industry's most strategically important equipment segments.