China's DUV Mass Production Rumors Heavily Impact ASML, Micron, SK Hynix ADR, and SanDisk

Multiple foreign media outlets reported that China's semiconductor industry made two major announcements on Monday (27th). One is that memory chip manufacturer ChangXin Memory (CXMT) saw its stock price soar 466% on its first day of listing in Shanghai, and the second is that China has reportedly started producing its self-developed immersion Deep Ultraviolet (DUV) exposure machines. Both pieces of news point to the acceleration of China's chip supply chain localization, prompting the market to reassess the competitive landscape of the global memory and semiconductor equipment industries.

Related concerns quickly spread to the US market. Micron (MU-US) fell as much as 7% intraday on Monday, with the final decline narrowing to 2.25%; memory card manufacturer SanDisk (SNDK-US) plummeted 11.02%, becoming the worst-performing constituent of the S&P 500 index that day; SK Hynix ADR (SKHY-US) also fell sharply by 7.47%.

The market is focused on China's progress in the exposure machine field. The Information and foreign media reported on Monday that a company located in Shanghai, supported by the Chinese government, has begun producing its self-developed immersion DUV exposure machines, with the team including personnel from new companies such as Yu Liang Sheng Technology.

According to the plan, the company will produce 5 DUV devices this year and increase production to 20 units next year. Potential customers include Semiconductor Manufacturing International Corporation (00981-HK), ChangXin Memory, and Hua Hong Semiconductor (01347-HK).

This news has deepened investors' concerns about the localization of China's chip equipment. The market is worried that once China overcomes the technological barrier of exposure machines, it may also accelerate the replacement of American-made deposition, etching, and inspection equipment in the future, leading to the selling of related stocks.

ASML ADR (ASML-US) fell approximately 7% intraday and closed down 5.8%; near the close, Applied Materials (AMAT-US) fell about 4%, Lam Research (LRCX-US) fell about 4.5%, and KLA (KLAC-US) also fell about 3%.

As news of China's domestically produced DUV progresses, the US Congress is pushing the Hardware Technology Management Multilateral Coordination Act (MATCH Act). The bill aims to restrict China from purchasing and repairing immersion DUV equipment. However, if China has the ability to produce the relevant equipment on its own, the effect of the US expanding export controls may be weakened.

In addition to the progress in exposure machine technology, ChangXin Memory's listing performance has also amplified market attention to the rise of China's memory industry. According to LSEG data, ChangXin Memory's market capitalization on its first day of listing reached approximately $484 billion, surpassing other Chinese listed companies.

ChangXin Memory is currently the world's fourth-largest dynamic random access memory (DRAM) manufacturer, only behind SK Hynix, Samsung Electronics, and Micron. However, since the company still cannot obtain ASML's extreme ultraviolet (EUV) exposure technology, it is still limited in the production of advanced high-bandwidth memory (HBM).

After news of China's self-produced DUV exposure machine progress, investors began to reassess the long-term competitiveness of ChangXin Memory and other Chinese chip companies.

Radio Free Mobile founder Richard Windsor pointed out that HBM has higher profit margins, prompting major memory manufacturers to shift some of their production capacity from traditional DRAM used in consumer electronics to AI data center chips. This production adjustment has caused a supply gap in the general DRAM market, also providing ChangXin Memory with an opportunity to fill the demand.

Windsor expects that when DRAM supply returns to normal, ChangXin Memory's stock price may experience a 'significant correction'; however, before supply and demand are rebalanced, the company is still expected to maintain a good development environment.

Although semiconductor stocks have plummeted, many Wall Street institutions believe that the market equates China's initial progress directly with ASML losing its market dominance, and the market's reaction to the news does not correspond to the actual risk.

BofA Securities analyst Didier Scemama described this drop in ASML as an 'attractive entry opportunity,' reaffirming the 'buy' rating and a target price of 2,452 euros, and believes that the threat currently posed by China's domestic equipment to ASML is still limited.

Scemama pointed out that China's main exposure machine manufacturer, Shanghai Micro Electronics Equipment (SMEE), has not yet proven that its equipment can support mass production of processes below 28 nanometers. In contrast, ASML's NXT:1980Fi machine can process 330 wafers per hour; if China's equipment lags behind in precision, speed, or stability, it may drag down the yield and increase the manufacturing cost per chip.

According to his estimates, even if China successfully obtains 20 domestically produced DUV devices next year, the impact on ASML's sales revenue would be approximately 1.4 billion euros, accounting for only 2.4% of the company's estimated total revenue.

JPMorgan analyst Sandeep Deshpande also said that manufacturing a small number of immersion DUV devices and supporting mass production in wafer fabs represent two completely different capabilities. Whether China's equipment can form real competition still needs to be verified in terms of yield, patterning accuracy, production efficiency, and reliability after thousands of wafer production batches.

Deshpande believes that China's development of self-produced equipment will indeed increase the long-term risks faced by ASML's China business, but it is expected that it will not affect the company's medium-term profit performance.

French bank BNP Paribas analyst Jakob Bluestone sees this development as a 'small negative' for ASML. He pointed out that by 2030, it is estimated that China's expanded DRAM capacity alone will increase the monthly wafer exposure volume by more than 500,000 wafers, requiring hundreds of ArFi immersion lithography machines to support.

Bluestone said that ASML's existing capacity cannot handle all the equipment needed for China's expansion while meeting the needs of other global markets. Therefore, China's self-production of some exposure machines may be a necessary measure to respond to local chip capacity growth and cannot be directly interpreted as China's equipment will completely replace ASML.

AI cooperation supports memory demand; pullback seen as entry opportunity

Although memory stocks generally fell on Monday, AI companies continued to expand cooperation, reflecting the continued strong demand for advanced memory.

NVIDIA (NVDA-US) signed a memorandum of understanding with South Korea's SK Group last Friday, planning to invest more than $500 billion. In addition to building AI factories with SK Telecom, it will also cooperate with SK Hynix to develop the next-generation HBM.

Broadcom (AVGO-US) also signed a memorandum of cooperation with Samsung Electronics, and the two parties will expand cooperation in advanced memory, wafer foundry, and advanced packaging in the fields of AI and network chips. The cooperation scale is expected to exceed $200 billion by 2030.

Bernstein analyst Mark Li pointed out that these cooperations are mostly centered around memory, showing that NVIDIA and Broadcom are actively ensuring future supply. The market estimates that the memory industry's annual revenue in 2027 and 2028 will reach $1.3 trillion, and the importance of memory to AI development has surpassed logic chips.

Li therefore sees the recent pullback in memory stocks as a 'good entry point' and believes that the new cooperation announced by NVIDIA and Broadcom will help alleviate market concerns about future supply shortages. On Monday, NVIDIA's stock price fell sharply by 4.99%, while Broadcom rose slightly by 0.34%.