Shares in the world's most important chip equipment makers dropped sharply on Monday after reports that China has begun mass-producing a machine it was long thought unable to build on its own.
According to Bloomberg's Sarah Jacob, ASML Holding NV slid to its lowest level since early June following a report that a Chinese state-backed company had started manufacturing deep ultraviolet (DUV) lithography machines. ASML shares fell more than 7%. The selloff spread across the sector: Applied Materials dropped more than 6.5% and Lam Research fell more than 7%.
Tom's Hardware reports that the company behind the machines is based in Shanghai, and that it is producing immersion DUV systems — a more advanced variant that uses a layer of liquid to sharpen the light used to etch circuit patterns onto silicon. Per that report, the first units are due to be delivered this year to SMIC, Hua Hong, and CXMT, three of China's largest chipmakers.
Lithography machines are the choke point of the entire semiconductor industry. They print the microscopic patterns that become transistors, and for years ASML has been effectively the only company capable of building the most advanced ones. That near-monopoly is precisely what made lithography such an effective lever in export restrictions aimed at slowing China's chip ambitions.
Both source reports describe the Chinese production as a claim from a report rather than a confirmed, independently verified milestone, and neither specifies the machines' technical performance relative to ASML's equipment.
Why it matters: if China can build its own immersion DUV machines at scale, the single biggest bottleneck in its domestic chip industry starts to loosen — and the pricing power investors have long assumed for ASML and its peers looks less secure than it did last week.