China has begun mass-producing homegrown immersion deep ultraviolet (DUV) lithography machines, a move that chips away at Dutch chip-tool giant ASML's long-held monopoly and gives Beijing a strategic hedge against tightening US export controls. A state-backed manufacturer in Shanghai is building the systems and will deliver the first units this year to China's three biggest chipmakers, according to The Information, which broke the story Monday citing two people familiar with the program.
The breakthrough
The unnamed Shanghai company expects to ship roughly five immersion DUV tools in 2026 and around 20 in 2027, according to the sources. The first customers are Semiconductor Manufacturing International Corp (SMIC), Hua Hong Semiconductor, and ChangXin Memory Technologies (CXMT) — the same three Chinese firms that a bill now moving through the US Congress would cut off from ASML sales and servicing by statute.
Immersion DUV lithography is the workhorse technology for etching circuit patterns into silicon wafers at 28nm-class features in a single exposure, and it can reach 7nm through multipatterning, though at a cost in overlay errors and yield. ASML has dominated this market for decades, controlling an estimated 98.7% of immersion tool shipments globally, according to an independent analysis from the AI Futures Project published in June.
The manufacturer was not named directly, but the operation appears to have pulled DUV development teams from several Chinese companies, one of them Shanghai Yuliangsheng Technology — a state-backed startup whose immersion tool SMIC has been testing since September 2025. Most components in the new machines are domestic, though some critical parts still come from Japanese suppliers. Local supply-chain delays have already held back output this year.
ASML's response
ASML expects to ship about 130 immersion systems in 2026, matching last year's volume, CFO Roger Dassen told analysts during the company's July earnings call, as Tom's Hardware reported. Dassen added that ASML intends to boost immersion capacity by 30% in 2027 and is exploring another 30% increase for 2028.
China accounted for about 20% of ASML's net sales this year, down from 33% in 2025 as export controls tightened. The Dutch company's stock dipped 1.8% on the news Tuesday amid a broader sell-off in global semiconductor shares that wiped out billions in market value across the sector. ASML shares remain up more than 120% year-to-date.
"China's reported breakthrough comes with some big caveats," Stephane Houri, head of equity research at ODDO BHF, told CNBC. "I would take this with a pinch of salt as what they do could be limited to the very low end." The AI Futures Project's analysis put commercial-scale Chinese immersion DUV in the mid-2030s, pointing out that trail ASML's products on overlay accuracy, throughput, and defect density by a wide margin.
Why now?
The timing of the production announcement tracks directly with Washington's escalating chip-war legislation. US House Resolution 8170 designates SMIC, Hua Hong, CXMT, Huawei, and YMTC as restricted entities in law — three of those five are the named first customers for the domestic scanner. The MATCH Act, introduced in April and reported out of the House Foreign Affairs Committee, goes further by covering servicing and technical assistance for immersion DUV tools, not just new exports. That would extend US restrictions to the installed fleet of ASML systems already operating in Chinese fabs, which have been stretched through secondary-channel upgrades over the past two years.
China's domestic EUV effort, which Reuters first reported as a working prototype in December, remains years away from commercial deployment. EUV — extreme ultraviolet — lithography is the next-generation process needed for the most advanced sub-3nm chips, and ASML remains the sole global supplier of that technology.
Investment implications
The emergence of a Chinese DUV alternative, however modest in scale, changes the calculus for global semiconductor supply chains. Even five tools per year is enough to keep SMIC and CXMT producing legacy-node chips for automotive, industrial, and consumer electronics markets — precisely the segments where demand has proven most resilient after the 2023-2025 inventory correction.
Qualifying the new machines for full-scale production lines will likely take many months. The Chinese tools trail ASML's products on performance, throughput, and build quality, multiple analysts noted. But for chips at 28nm and above — the nodes that still account for more than half of global semiconductor revenue — even a marginally competitive domestic option gives Beijing options it did not have before.
The broader market reaction was swift. ASML competitor Tokyo Electron saw its shares rise on expectations that a viable second source for DUV tools could open new markets across Asia. Shares of Chinese foundry SMIC also gained on the view that domestic tool access could accelerate its capacity-expansion plans.
CXMT, the DRAM maker that went public on July 27 in one of China's biggest tech IPOs this year, stands to benefit directly: its Changsha fab relies heavily on immersion DUV for the 17nm-class DRAM that the company plans to ramp in the second half of 2026.
What comes next
The production milestone does not mean China has closed the gap with ASML — far from it. The Dutch company invests roughly EUR 2 billion annually in R&D and holds a formidable patent portfolio in optical systems, reticle stages, and interferometer positioning. But for the US and its allies, the calculus has shifted: export controls that were designed to push Chinese chipmaking back by a decade may have accelerated indigenous tool development instead.
"Every year of restriction is another year of Chinese investment in self-sufficiency," said a semiconductor supply-chain consultant based in Shanghai who asked not to be named because they are not authorized to speak to the media. "These tools aren't ASML replacements yet, but they don't need to be — they just need to keep SMIC and CXMT running if the MATCH Act cuts off service contracts."
The next milestone to watch is whether Chinese fabs can integrate the domestic tools into volume production without crashing yields. If SMIC qualifies the tool for 28nm production by mid-2027, the global semiconductor equipment market — worth an estimated $229 billion by 2028 according to SEMI — will have its first real challenger to ASML's lithography franchise since the company shipped its first PAS 5500 stepper three decades ago.
For context, the Chinese semiconductor equipment industry has grown steadily under the shadow of US sanctions. Local toolmakers like Naura Technology and AMEC have posted double-digit revenue growth for five consecutive years, and the domestic DUV program appears to be the most advanced expression of a broader push to indigenize the entire chipmaking supply chain — from silicon ingots and epitaxy to deposition, etch, and metrology tools.
For the broader Semiconductors sector, this development confirms that the chip industry is splitting into two technology ecosystems — one anchored by ASML and TSMC, the other by Chinese domestic tooling and foundries. Investors, automakers, and cloud providers who depend on affordable legacy-node supply should watch the qualification timeline closely.
ASML's own technology roadmap remains unthreatened in the near term. The company has booked more than EUR 30 billion in orders for its High-NA EUV systems, which are already being installed at Intel, Samsung, and TSMC for sub-2nm production starting in 2027. But if the Chinese tools prove viable at scale, the mid-market for 28nm-class foundry capacity — still a $65 billion annual market — could see a structural price correction that reshapes margins across the entire semiconductor value chain.