Key facts
- ASML shares fell nearly 6% on Monday and approximately 10% over two days, erasing over €60 billion from its market capitalization.
- China has begun mass producing domestically developed immersion DUV lithography machines, led by Shanghai Aishengna Electronic Technology Group.
- ASML holds a dominant market share in DUV lithography and a monopoly in the advanced EUV segment.
- U.S. export controls restrict ASML's sales of advanced equipment to China.
- China plans to produce five DUV tools this year and 20 by 2027.
ASML, Europe's most valuable listed company, experienced a significant drop in its share price following reports that a Chinese state-owned firm, Shanghai Aishengna Electronic Technology Group, is reportedly developing immersion deep ultraviolet (DUV) lithography tools. This development underscores the geopolitical pressures on ASML, which is navigating U.S. export controls restricting sales to China while China pursues technological self-sufficiency in chip production.
ASML's shares fell nearly 6% on Monday and approximately 10% over two days, erasing more than €60 billion from its market capitalization. While the Chinese-developed DUV machines are in their early stages and do not yet match ASML's capabilities, this move signals China's ambition to reduce its reliance on foreign technology. China intends to produce five DUV tools this year and 20 by 2027, a volume considerably lower than ASML's shipments. Analysts suggest that U.S. export controls, which prevent ASML from selling its most advanced EUV and best immersion DUV tools in China, may have inadvertently created a market opportunity for Chinese-made lithography equipment.
ASML currently dominates the DUV market and holds a monopoly in the more advanced EUV segment, which is crucial for cutting-edge chip fabrication. The company anticipates that approximately 20% of its revenue, totaling around €9 billion, will originate from China this year. Some analysts believe the immediate impact on ASML may be limited due to its technological lead, but the long-term risk to its China revenue is elevated by this development. Chinese chipmakers might opt for domestic, less advanced machines if they are concerned about the future availability of foreign technology due to U.S. restrictions.
Lithography machines are essential for semiconductor manufacturing, using light to etch microscopic circuitry onto silicon wafers. ASML's DUV machines, costing around $60 million each, are used for industrial and consumer electronics, while its monopoly lies in the cutting-edge EUV segment. Standard EUV tools, priced at about $200 million, are vital for manufacturing most AI chips and leading-edge memory chips. The company's newest 'High NA' EUV tools, estimated at $350 million to $400 million, are being tested for future generations of AI chips with even smaller features. These EUV machines are massive, comparable in size to a school bus and weighing 150 tons, employing complex systems of lasers, mirrors, and magnets to achieve extreme precision.