ASML, the Dutch semiconductor equipment giant, saw its shares fall as much as 8 per cent on Monday before closing down 5.8 per cent after reports emerged that China had begun manufacturing home-grown immersion deep-ultraviolet (DUV) lithography machines through a state-backed company in Shanghai. Yet industry analysts are urging investors not to overreact, arguing that domestic Chinese chipmaking equipment poses a more limited near-term threat to ASML than the market sell-off suggests.

What the reports said

According to reports citing anonymous sources, China is expected to produce roughly five DUV units this year and approximately 20 units in 2027. The first systems are reportedly destined for Semiconductor Manufacturing International Corporation (SMIC), Hua Hong Semiconductor, and memory-chipmaker ChangXin Memory Technologies (CXMT). The machines are said to have been developed through a state-backed entity in Shanghai, with suppliers including names such as Shanghai Micro Electronics Equipment, Beijing Keyi Hongyuan Optoelectronics, Shanghai Yuliangsheng Technology, Beijing U-Precision Tech, and Amies Technology.

Why it matters — but less than the market implied

Paul Triolo, partner and technology policy lead at DGA-Albright Stonebridge Group, cautioned that producing a machine and qualifying it for sustained commercial output are fundamentally different challenges. 'Producing machines of the complexity of DUV immersion lithography that are commercially viable and running 24 hours, seven days a week, for an entire year is very difficult,' he said. Analysts broadly echoed this view, noting that yield rates, uptime reliability, and supply-chain depth remain formidable barriers for any new entrant.

Market reaction

While ASML's stock retreated in US trading on Monday, 28 July 2026, lithography-related shares on mainland Chinese exchanges surged on Tuesday. Zhangjiang Hi-Tech, Yongxin Optics, Highly Group, and Wavelength Opto-Electronic all hit their daily upper limits, reflecting investor optimism around a domestic supply chain that could eventually reduce reliance on foreign equipment. The divergence underscores the geopolitical dimension embedded in semiconductor equipment valuations on both sides.

The competitive backdrop

China's push to indigenise chipmaking tools accelerated after successive rounds of US export controls — including restrictions codified under the Match Act — cut off access to advanced equipment from ASML, Applied Materials, and others. Huawei Technologies and SMIC have already demonstrated the ability to produce certain advanced chips domestically, raising questions about the long-term efficacy of technology controls. The Anhui-based memory sector, anchored by CXMT, is seen as a key beneficiary if domestic DUV machines reach commercial-grade reliability.

What's next

The critical test will be whether Chinese-made DUV machines can sustain production-grade uptime and yield at customer fabs over a full operating year — a bar that has taken established players decades to clear. Investors and policymakers alike will be watching qualification timelines at SMIC and CXMT closely. For ASML, the more immediate risk may lie in demand softness from Chinese customers already stockpiling legacy equipment, rather than outright displacement by domestic alternatives.