ASML shares, the global No. 1 lithography equipment maker, tumbled after reports that a Chinese state-owned corporation had begun mass production of deep ultraviolet (DUV) lithography tools for semiconductor manufacturing.
Bloomberg said on the 27th, citing IT outlet The Information, that a state-backed semiconductor equipment corporation based in Shanghai, China, has begun mass production of immersion DUV lithography tools. The company name was not disclosed, and it was reported to plan producing about five systems this year and around 20 next year.
The Information said the equipment is slated to be supplied to major Chinese chipmakers such as Semiconductor Manufacturing International Corp. (SMIC), ChangXin Memory Technologies (CXMT), and Hua Hong Semiconductor. Unable to secure EUV tools due to U.S. export controls, Chinese chip corporations aim to continue smartphone and artificial intelligence (AI) chip production by applying multi-patterning processes to immersion DUV equipment.
The entity behind the equipment is understood to be less a single company than a localization consortium. The Information said development was carried out by integrating DUV research and development (R&D) organizations of several Chinese corporations around Weiliangxing.
Industry sources believe that along with Weiliangxing, Xinkailai, Shanghai Micro Electronics Equipment (SMEE), Huawei, and a Tsinghua University research team took part in the technology development. Xinkailai, a semiconductor equipment maker founded by former Huawei staff, is counted among the key corporations in the Chinese government's semiconductor self-reliance strategy.
Lithography tools are core semiconductor equipment that project light onto wafers to form circuits. They are divided into extreme ultraviolet (EUV) and DUV systems depending on process miniaturization levels, with DUV mainly used for processes at 10 nanometers (nm) and above. While EUV use is higher in cutting-edge nodes, DUV also sees steady demand in mature nodes and some advanced processes.
After news of China's DUV localization broke, ASML shares fell 8.4% that day. Despite U.S. semiconductor export controls on China, expectations that China is making progress in developing its own lithography tools appear to have affected investor sentiment.
Since 2019, the United States has pressured the Dutch government to restrict ASML's exports of EUV lithography tools to China, and in 2023 it added cutting-edge immersion DUV tools to the controls. More recently, it has been pushing the "MATCH Act," which would even restrict parts supply and maintenance services for DUV tools already delivered to China.
However, the industry still assesses a significant technology gap between Chinese-made equipment and ASML. While ASML produces more than 130 immersion DUV systems a year, the Chinese equipment's production target remains around five units this year. The technology level is akin to ASML's early-generation immersion DUV, and analyses say there remain years of gaps in precision, Production yield, and equipment reliability.
Meanwhile, the industry expects the initial public offering (IPO) of CXMT, China's No. 1 DRAM maker, to have a positive effect on the growth of China's semiconductor equipment ecosystem.
Choi Seol-hwa, an analyst at Meritz Securities, said, "The listing of CXMT carries meaning beyond capital raising," adding, "As CXMT applies Chinese-made equipment to mass-production lines and improves Production yield and errors, Chinese equipment makers can accumulate large-scale mass-production experience and learning effects, narrowing the technology gap with global companies."