China’s DUV Chip Tool Push Shakes Markets. ASML’s Dominance Faces Scrutiny, But Major Hurdles Remain

China's reported production of a homegrown deep ultraviolet (DUV) lithography machine has renewed focus on the global semiconductor race, as governments continue to treat advanced chip technology as a strategic asset amid ongoing geopolitical tensions, export restrictions, and conflicts that have reshaped global supply chains.

A CNBC report noted that a Chinese state-backed company has begun manufacturing immersion DUV lithography machines, equipment that has long been dominated by Dutch semiconductor equipment maker ASML. The machines are expected to be delivered this year to leading Chinese chipmakers including Semiconductor Manufacturing International Corp. (SMIC) and ChangXin Memory Technologies (CXMT), according to The Information.

The report triggered a sharp sell-off in semiconductor stocks, with ASML shares falling as investors weighed the possibility that China could gradually reduce its reliance on imported chipmaking equipment. The broader decline also reflected continued uncertainty across the semiconductor sector, where geopolitical developments and technology restrictions remain major drivers of market sentiment. Reuters reported that ASML's stock suffered one of its steepest single-day declines following the news.

Immersion DUV lithography systems are used to project circuit patterns onto silicon wafers during chip manufacturing. While they are critical for producing many mainstream semiconductors, they differ from extreme ultraviolet (EUV) lithography machines, which are required for manufacturing the world's most advanced processors used in products designed by companies such as Apple and Nvidia. ASML remains the only commercial supplier of EUV lithography systems.

According to the CNBC report, analysts cautioned that China's reported manufacturing milestone does not automatically place it on equal footing with ASML. Several industry experts said the performance, reliability and manufacturing yield of the Chinese-built systems remain unknown, factors that determine whether chipmakers can use the equipment efficiently in commercial production.

Production scale also remains limited. According to The Information, the Chinese manufacturer plans to produce about five immersion DUV systems this year and approximately 20 in 2027. By comparison, ASML has said it expects production capacity of roughly 130 DUV immersion machines in 2026, with further expansion planned afterward.

China has steadily accelerated efforts to localize semiconductor production following successive rounds of U.S. export controls that restricted Chinese companies' access to advanced chips and manufacturing equipment. Those restrictions were expanded by Washington and coordinated with allies including the Netherlands and Japan, limiting exports of advanced lithography systems and certain semiconductor manufacturing technologies to China.

Despite the reported progress, analysts said China's advancement in immersion DUV technology should not be viewed as equivalent to mastering EUV lithography. Paul Triolo of DGA-Albright Stonebridge Group told CNBC that although some engineering knowledge can carry over between DUV and EUV systems, the technologies differ substantially, particularly in light sources and optical systems.

A separate Reuters Breakingviews analysis also concluded that concerns over ASML's competitive position may be overstated, noting that the Dutch company continues to hold a significant technological advantage while questions remain over the reliability, output quality and commercial deployment of China's newly reported equipment.