China Mass-Produces UVP Lithography Machines, a Semiconductor Milestone

What happened?

According to The Information, a Chinese government-backed company has begun series production of immersion deep ultraviolet (UVP) lithography machines. Although the name has not been officially confirmed, several sources point to Shanghai Yuliangsheng Technology, a startup linked to Huawei and SiCarrier. The initial plan is to manufacture five units this year for SMIC, Hua Hong Semiconductor, and CXMT, and twenty more in 2027. This milestone represents the first time China has produced advanced lithography equipment on an industrial scale, a field dominated for decades by the Dutch company ASML.

Why it matters

Until now, China depended almost completely on ASML for its advanced lithography equipment. US and Dutch sanctions prohibited the sale of EUV machines and limited the most advanced DUV ones. This breakthrough demonstrates that China is achieving self-sufficiency in a critical link of the semiconductor supply chain. ASML's shares fell up to 6.5% in Amsterdam, and Applied Materials, Lam Research, and KLA Corp lost between 4% and 7% (source: Blockonomi). The market reaction reflects fears that China will reduce its imports of lithography equipment, which in 2023 represented approximately 15% of ASML's revenue. Additionally, the news comes at a time when ASML already faces restrictions on exporting its NXT:1980 machines and above to China, accelerating China's need to develop its own alternatives.

Consequences and limitations

Despite the progress, China remains a generation behind. Yuliangsheng's machines are designed for 28 nm processes, although with multipatterning they could reach 7 nm. In comparison, ASML already produces EUV machines for 3 nm nodes, and its most advanced immersion DUV (like the NXT:2050i) reaches 7 nm without multipatterning. SMIC plans mass production of these machines by 2027. Additionally, Yuliangsheng is not alone: SMEE (Shanghai Micro Electronics Equipment) has sold ten units of its SSA800 series for i-line UVP lithography, used in older nodes (90 nm and above). However, the reliability and performance of Chinese machines still need to be proven in large-scale production. Historically, Chinese lithography equipment has had precision and speed issues, limiting its adoption in high-volume manufacturing.

"China is breaking barriers, but it still needs years to catch up with the leaders. Self-sufficiency in DUV is a big step, but the leap to EUV will be more complex," notes an industry analyst.

What should readers know?

• Market impact: ASML's drop reflects fears of losing revenue in China, which remains an important customer despite sanctions. In 2023, China accounted for 29% of ASML's sales, but restrictions have reduced that percentage. If China manages to produce its own DUV machines, ASML could lose up to 5 billion euros in potential annual revenue, according to analyst estimates.
• Geopolitics: This advance could harden sanctions from the US and its allies, accelerating technological fragmentation. The US Department of Commerce has already indicated it is reviewing the impact of China's new capabilities. Additionally, the Netherlands could expand export restrictions on maintenance equipment and spare parts for ASML in China.
• Technology: Immersion DUV machines are less advanced than EUV, but sufficient for a large part of global chip demand (automotive, IoT, etc.). It is estimated that 70% of chips manufactured worldwide use nodes of 28 nm or above, where immersion DUV is competitive. Therefore, China's self-sufficiency in DUV could cover a significant portion of its domestic demand.
• Timelines: Large-scale production will not arrive until 2027, and the reliability and performance of Chinese machines still need to be proven. Additionally, the supply chain for critical components (such as high-precision lenses and light sources) remains a bottleneck. Yuliangsheng relies on domestic suppliers for these components, but their quality still does not match world leaders like Zeiss (ASML's supplier).

Historical context

China has been investing heavily in its semiconductor industry for years, driven by initiatives like the National Integrated Circuit Investment Fund (Big Fund), which has mobilized over $50 billion since 2014. Yuliangsheng's success adds to other recent achievements, such as SMIC's advances in 7 nm nodes without EUV equipment, using multiple DUV exposures. However, photolithography remained the hardest bottleneck to overcome. In 2020, China attempted to purchase an EUV machine from ASML, but the Dutch government blocked the sale under US pressure. Since then, China has redoubled its R&D efforts in lithography, with Yuliangsheng as one of the most promising projects. The company was founded in 2021 by former SMIC and Huawei employees and has received funding from the Big Fund and the Shanghai government.

Comparison with previous events

This milestone recalls the development of China's solar panel industry, which went from being a net importer to dominating global production in less than a decade. In semiconductors, the path is slower due to technological complexity and intellectual property barriers. A close precedent is SMIC's success in producing 7 nm chips without EUV in 2022, which surprised the industry and led to new sanctions. However, mass production of lithography equipment is a qualitatively different step, as it reduces dependence on foreign suppliers not only for chip manufacturing but also for the tools that make them. If China manages to scale its DUV production, it could replicate the success model of the telecommunications equipment industry, where Huawei went from being a follower to a global leader.

Conclusion

The start of mass production of Chinese DUV machines is a milestone that reshapes the balance of power in the semiconductor industry. Although it does not immediately threaten ASML's dominance, it lays the groundwork for greater Chinese self-sufficiency and a possible reduction in dependence on foreign technologies. The coming years will be key to seeing if these machines meet performance and reliability expectations, and if sanctions intensify. For now, China has shown it can overcome technical barriers that many considered insurmountable, and the global semiconductor market will have to adapt to a new scenario with more players and greater fragmentation.