China's DUV Lithography Breakthrough Intensifies Global Chip Competition

Reports indicating that China has begun producing its own Deep Ultraviolet (DUV) lithography machines mark a significant development in the global semiconductor industry. This technology is critical for chip manufacturing and has long been predominantly controlled by the Dutch giant ASML. A state-backed company in Shanghai has reportedly started manufacturing DUV machines, with initial deliveries expected this year.

According to reports, this unnamed Shanghai-based state-backed company assembled DUV development teams from other Chinese firms, including the state-backed startup Shanghai Yuliangsheng Technology. Initial production is expected to be limited, with approximately five DUV machines planned for this year (2026) and around 20 in 2027. These machines are anticipated to be delivered to leading Chinese chipmakers such as Semiconductor Manufacturing International Corp (SMIC), Hua Hong Semiconductor, and ChangXin Memory Technologies (CXMT). However, Reuters identified the company behind this production effort as Shanghai Aishengna Electronic Technology Group.

Despite this progress, China's domestic DUV systems are said to lag behind ASML's models in terms of performance and reliability, requiring further testing before mass production can commence. Some reports suggest that the Chinese-made tools resemble an ASML design from around 2008, capable of 32-nanometre-class work. Other Chinese firms, such as Shanghai Micro Electronics Equipment (SMEE), are also pursuing efforts to develop 28nm DUV systems.

The news led to a sharp sell-off in shares of global chip equipment manufacturers. ASML's stock price plummeted by over 7%, marking its worst day since June 8. Other semiconductor equipment suppliers, including BE Semiconductor Industries (BESI), Soitec, Infineon Technologies, Lam Research (LRCX), and Applied Materials (AMAT), also experienced declines. Analysts, however, emphasize that the gap with ASML remains significant, as the Dutch manufacturer delivers hundreds of immersion DUV systems annually, dwarfing China's planned limited output.

This development is a direct consequence of U.S. export restrictions aimed at curbing China's access to advanced chipmaking technologies. The denial of access to ASML's sophisticated Extreme Ultraviolet (EUV) systems, in particular, has spurred Beijing's drive for domestic solutions to achieve semiconductor self-sufficiency. Furthermore, new regulations, such as the MATCH Act, are being considered in the U.S. Congress to impose even tighter restrictions on the sale and servicing of DUV machines to Chinese chipmakers.

Analysts and market expectations suggest that it will take years for China's domestic DUV tools to match ASML's capabilities for high-volume, advanced production. Nevertheless, this breakthrough is seen as a crucial indicator of China's long-term commitment to building an independent chip supply chain. Experts believe China will likely continue to purchase ASML machines due to their superior quality for as long as possible, but domestic efforts have become a “necessity” for the country's chip output growth. China is also developing its own EUV machine, though it remains at the prototype stage and is years away from production.