A state-backed Shanghai company has started mass-producing its own immersion DUV lithography machines — and Wall Street did not take it well.
ASML fell more than 7% on Monday after The Information broke the story. The Dutch chipmaking equipment giant had actually been up more than 2% before the open, lifted by easing Iran tensions and news that Nvidia is in talks to back a $250 billion OpenAI data center deal. That optimism evaporated fast.
ASML China exposure has been a lingering concern for investors. The company’s Q2 earnings showed China made up 14% of net systems sales, down from 19% in Q1. CFO R.J.M. Dassen had said China was expected to account for around 20% of full-year net sales. That forecast is now under a cloud.
Because U.S. and Dutch export controls already blocked ASML from selling its advanced EUV machines to China, Chinese chipmakers shifted to stockpiling ASML’s older DUV tools instead. Those DUV sales became a critical revenue line. If domestic Chinese suppliers can now fill that gap, ASML’s remaining business in the region is directly threatened.
The unnamed company reportedly assembled its development teams by pulling talent from other Chinese firms, including state-backed startup Shanghai Yuliangsheng Technology.
ASML wasn’t alone. Applied Materials dropped around 5%, Lam Research fell nearly 7%, and KLA Corp slid close to 5%. These companies supply equipment for the steps surrounding lithography — deposition, etching, and defect measurement.
The market logic is simple: lithography has always been considered the hardest bottleneck in chipmaking. If China has cracked it, investors fear the rest of the supply chain is next.
The sell-off also comes as U.S. Congress advances the MATCH Act, bipartisan legislation designed to block China from buying or servicing DUV machines. If China can now build them at home, those restrictions may carry less weight than intended.
It’s worth keeping perspective here. The Chinese DUV machines are still early-stage. The unnamed company plans to produce just five units this year, with a target of up to 20 in 2026. That’s a far cry from ASML’s scale of production.
China’s EUV ambitions remain even further behind — those machines are still in prototype stage and likely years from commercial production.
Still, the direction of travel is clear. Beijing made lithography a national priority back in 2002, and after the U.S. tightened export controls in 2022, China shifted from state-led R&D to a faster public-private model.
ASML’s Q2 report, released before Monday’s news, had already flagged softening China demand. The company now faces the possibility that its DUV revenue in the region declines further as domestic Chinese alternatives scale up.
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