China's Domestic DUV Lithography Enters Mass Production! Is ASML's Dominance at Risk? Analysts Reveal Three Major Weaknesses

According to international media reports on Tuesday (28th), China has started mass production of its self-developed immersion deep ultraviolet (DUV) lithography equipment, with plans to deliver units this year to major Chinese chipmakers including Semiconductor Manufacturing International Corporation (SMIC; 00981-HK), Hua Hong Semiconductor (01347-HK), and ChangXin Memory Technologies (CXMT; 688825-CN). This marks a significant advancement in Beijing's push for semiconductor equipment self-sufficiency.

The news initially sparked market concerns over a potential weakening of ASML's (ASML-US) monopoly, causing its stock to plunge. However, analysts argue that Chinese equipment still faces major challenges in yield, capacity, reliability, and service systems, making it unlikely to threaten ASML in the short term.

China's Domestic DUV Begins Mass Production, Targeting 5 Units This Year

Reuters, citing sources, reported that Shanghai-based state-owned Shanghai Aisino Electronics Technology Group has begun mass production of China's independently developed immersion DUV lithography equipment. The company has integrated several domestic lithography startup teams, positioning itself as the primary driver of this national localization initiative.

The Information first disclosed that a Chinese government-backed company headquartered in Shanghai has started manufacturing immersion DUV equipment, aiming to produce around five units this year and increase output to approximately 20 units by 2027. The equipment is expected to be delivered this year to SMIC, Hua Hong Semiconductor, and memory manufacturer CXMT.

Immersion DUV equipment improves optical resolution by placing a layer of water between the projection lens and silicon wafer, enabling the printing of smaller circuit patterns than traditional dry lithography. This technology is widely used in mature process chips and, through multi-patterning techniques, can also produce more advanced semiconductors by exposing the same wafer layer multiple times.

Shanghai Aisino was established in August 2023 with a registered capital of RMB 7 billion (approximately USD 1 billion). Shareholders include Shanghai Electric Holding Group and subsidiaries of Shanghai International Trust, both state-owned enterprises.

Sources indicate that Aisino has integrated teams from lithography startups Yuliang Sheng and Shanghai Micro Electronics Equipment (SMEE). Yuliang Sheng is an affiliate of Xin Kai Lai, a semiconductor equipment firm supported by Huawei, which began testing DUV prototypes last year. Corporate and recruitment data also show that Aisino and Yuliang Sheng share the same address in Shanghai.

Yield, Reliability, and Capacity: Three Major Challenges for Domestic Equipment

China's successful mass production of immersion DUV equipment holds symbolic importance for advancing semiconductor self-reliance and could provide an alternative source for Chinese chipmakers if Western nations further restrict lithography equipment exports or maintenance services. However, analysts warn that building a working machine is fundamentally different from developing a mature system capable of large-scale mass production.

One of the most critical metrics for chipmakers is yield—the proportion of functional chips per production batch. It remains unclear whether the yield of China's domestic DUV equipment can approach that of ASML's products. If the gap is too large, even if the equipment can perform exposure, high production costs may prevent widespread adoption by foundries.

Nick Patience, Head of AI Research at Futurum Group, stated that Chinese equipment must exceed mere 'functionality' and at least match existing equipment in yield. He noted that even SMIC, using imported DUV tools, lags behind TSMC (2330-TW)(TSM-US) in production performance, and a state-owned enterprise without market track record starts from an even more disadvantaged position.

Reliability is another major hurdle. Foundries typically operate year-round, requiring lithography tools to maintain precise overlay accuracy, throughput, and stability across thousands of wafer exposures. ASML has refined its equipment over decades of real-world use, while Chinese manufacturers must still undergo extensive field testing and technical iteration.

Capacity gaps are also evident. Chinese developers plan to produce only about five units this year, increasing to 20 by 2027. In contrast, ASML plans to have an annual production capacity of around 130 immersion DUV systems by 2026, with a further 30% increase by 2027.

SemiAnalysis analysts point out that Chinese DUV equipment faces limitations in performance, production scale, fleet stability, peripheral supply chains, and cost-effectiveness. The most underestimated challenge, they argue, is scaling up the production capacity of the equipment itself.

Short-Term Threat to ASML Limited; EUV Remains a Higher Barrier

Following the news, ASML's stock dropped as much as 8%, reflecting investor concerns that China's continued development of an independent semiconductor supply chain could weaken Western and Asian equipment vendors' positions in the Chinese market. However, ASML's stock has still risen over 100% year-to-date, and analysts generally believe that China's domestic DUV will not significantly alter its profit outlook in the short term.

China remains a key market for ASML, accounting for about 16% of the company's net sales in the first half of the year. However, due to export controls by the U.S. and the Netherlands, ASML has already been unable to export certain advanced immersion DUV tools to China. Therefore, SemiAnalysis argues that domestic Chinese equipment primarily replaces revenue ASML has already lost due to export restrictions, rather than directly eroding its existing orders.

JPMorgan analysts also noted that producing a few immersion DUV tools does not mean they are ready for high-volume manufacturing. True competitiveness depends on yield, overlay accuracy, wafer throughput, and long-term reliability after thousands of operations.

Even if Chinese equipment meets some domestic demand, challenging ASML globally requires building large-scale production capacity and providing long-term maintenance and technical support across multiple foundry environments—difficult to achieve in the short term.

Regarding more advanced extreme ultraviolet (EUV) equipment, analysts believe progress in DUV does not imply a quick leap over EUV's technological barriers. ASML spent about 20 years and invested approximately USD 10 billion in R&D, with co-investment from Intel, TSMC, and Samsung, before commercializing EUV. It was not until around 2018–2019 that EUV began generating profits through volume production.

Although China has reportedly completed an EUV prototype, EUV's light source and optical systems are far more complex than DUV. In short, while China's domestic DUV mass production is a significant step toward semiconductor self-reliance, it remains a long way from truly breaking ASML's technological and commercial moat.