Analysts Skeptical About China's Advances in DUV Lithography

Experts have expressed doubts regarding the significance of reports on China’s initiation of immersion DUV lithography production, stating that the first machines do not pose a direct threat to ASML's dominance, according to SCMP.

Information Bombshell

A report published on Monday by The Information, citing anonymous sources, triggered a sell-off of ASML shares in the U.S., which dropped over 8% at one point during the day and ultimately closed down by 5.8%.

According to The Information, China has commenced the production of domestic immersion DUV lithography machines via a state-owned enterprise in Shanghai.

The report suggests that the country could produce around five DUV systems by 2026 and approximately 20 more by 2027. The initial recipients of these systems are expected to be SMIC, Hua Hong Semiconductor, and ChangXin Memory Technologies.

Reuters also confirmed, citing a knowledgeable source, that China has begun mass production of DUV lithography equipment, with the project led by the state-owned Shanghai Aishengna Electronic Technology Group, which has collaborated with leading Chinese technology startups.

Currently, Chinese chip manufacturers rely on ASML’s equipment, with DUV technology being the most advanced option available to them, as EUV lithography machines are banned from being exported to China. Consequently, Chinese firms can produce semiconductor components using a 28-nm process in a single exposure cycle and achieve 7 nm through multiple patternings.

Assessing the Breakthrough

According to SCMP, analysts have pointed out that even the delivery of the initial machines does not indicate readiness for continuous commercial operation, and there is no immediate threat to ASML’s market position.

Paul Triolo, a partner and head of technology policy at DGA-Albright Stonebridge Group, cautioned against overestimating these reports. He noted that the main hurdle is achieving stable operation of immersion DUV systems around the clock for an entire year.

William Bevington, an analyst at Jefferies, remarked that previous claims about China’s lithography advancements turned out to be unfounded. Thus, it remains to be seen how credible the current statements are. He assessed that China’s capabilities in producing such equipment could have progressed faster if there had been a focus on private enterprises rather than state-owned companies like SMIC and CXMT, which currently rely entirely on imported systems and are keen on collaborating with the Dutch supplier and having its engineers available for machine maintenance.

"China will undoubtedly continue to purchase ASML equipment as long as it remains possible, due to its significantly superior quality," stated Bevington.

Experts believe that a more pressing risk to ASML's dominance comes from potential U.S. export restrictions. The Match Act, which was approved by the U.S. House Foreign Affairs Committee in April but has yet to be voted on by the full House, prohibits the sale of immersion DUV systems to countries deemed "concerning." The bill suggests stricter limitations on servicing and support for "key semiconductor manufacturing enterprises."

"If the Match Act were to compel ASML to withdraw its engineers, it would significantly boost the development of Chinese immersion DUV technology," Triolo contended.

He assessed that Beijing’s efforts are unlikely to culminate in the emergence of a single company comparable to a "Chinese ASML."       

It is worth noting that in June, amid U.S. export restrictions, Huawei announced its intention to produce a new generation of AI chips, Ascend, every year while doubling their performance. Startup DeepSeek revealed plans to develop its own processor for its models.