China accelerates mass production of its self-developed DUV exposure machine—will it rewrite the global semiconductor landscape? JPMorgan: the market reaction is excessive

Market rumors say China has begun mass producing domestically developed immersion DUV exposure machines, driving ASML’s stock price to plunge more than 8% in a single day. However, JPMorgan analysts believe this is an overreaction, as ASML still maintains a clear lead in both technology and mass production scale.
(Background: Korean stocks triggered another circuit breaker, the Nikkei plunged 4%, and Taiwan stocks fell by 1,800 points, breaking below 42k; a stampede from large-cap stocks)

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• A four-year-old startup—what did it build?
• 5 units, or 130 units?
• A “too much of a reaction” call from JPM

Markets recently reported that China has started mass producing domestically developed immersion deep ultraviolet (DUV) exposure machines. Once the news broke, ASML’s stock listed in the Netherlands fell more than 8% on the 27th, dragging the entire semiconductor equipment supply chain lower.

DUV tools are used to expose circuit patterns onto silicon wafers. Under U.S. export controls, Chinese chipmakers currently cannot obtain the most advanced lithography equipment, so they can only import older-generation machines. If they can truly mass produce them independently, it means they have carved a gap in the blockade line set by the U.S.

A four-year-old startup—what did it build?

This wave of information comes from The Information. It says a China-based, government-linked but unnamed company has started producing DUV machines, with deliveries of 5 units this year and capacity rising to 20 units next year. Although the relevant technology still needs further testing for performance and reliability, in the long run it could challenge ASML’s position in the China market.

After verification, the company in question appears to be Shanghai Yunliangsheng Technology, founded in 2022, headquartered in the Pudong New Area of Shanghai. It is state-capital controlled, with registered capital of RMB 1 billion. Ownership is split 50/50 between Shenzhen Xinkailai Technology and Kechuangwei (Shanghai) Technology, and it has engaged in technical cooperation with Huawei, Shanghai Microelectronics, and Tsinghua University.

The first batch of machines is expected to be delivered this year to three Chinese wafer fabs: Semiconductor Manufacturing International Corporation (SMIC), Hua Hong Semiconductor, and CXMT (ChangXin Memory Technologies). Among them, SMIC has already begun testing the first domestically produced immersion DUV.

On technical specifications, the machine targets 28-nanometer single exposure. If paired with multiple patterning, in theory it can reach 7 nanometers or even 5 nanometers. Multiple patterning, in simple terms, means dividing the same circuit layer into several exposures and stacking them through multiple steps. With more steps come higher costs and lower yield—being able to do it doesn’t automatically mean you can afford to.

Extreme ultraviolet (EUV) lithography machines are the industry’s widely recognized, only tools currently capable of producing the most advanced process chips. Globally, only ASML can manufacture them, and they were already included on the list of items banned from sale to China. While DUV is an older generation of technology, it is the only advanced lithography tool Chinese chipmakers can still access under the ban. And as the U.S. considers further tightening restrictions on the export of DUV machines to China and on repair services, Beijing accelerating indigenous machine development is essentially preparing in advance for the supply chain to run out of food—grabbing control of the lifeline rather than betting whether the U.S. will loosen its grip.

5 units, or 130 units?

Multiple overseas media reports estimate that Chinese machines still lag by one generation from the industry’s top machines in output speed, alignment accuracy, and long-term reliability. The specification gap has even been estimated at more than ten years. Most machine parts come from Chinese suppliers, but key components still depend on Japan. Delayed deliveries of local parts have also slowed this year’s production schedule. China is developing EUV machines in parallel, but it still remains at the prototype stage, and it still has a long road ahead before mass production.

According to ASML company data, it can produce about 130 DUV immersion exposure machines per year. It plans to increase capacity by 30% in 2027 and, depending on demand, add another 30% in 2028 to meet the demand growth driven by AI infrastructure buildout. Shanghai Yunliangsheng’s targets are 5 units this year and 20 units next year, with a capacity gap of more than 26 times.

JPM calls it “an overreaction”

JPMorgan analyst Sandeep Deshpande believes the stock selloff is an overreaction.

He noted that China has long produced lower-end exposure machines, but so far it has not caused any material impact on ASML’s market share in the front-end wafer manufacturing market. ASML still maintains a clear lead in technical capability and mass production scale, so this round of selling pressure is more driven by sentiment rather than deterioration in fundamentals. Still, he also admitted that the trend of semiconductor self-sufficiency in China is becoming increasingly solid, and in the long run it may raise risks to ASML’s China revenue.

On the same day, memory stocks such as Micron, SK Hynix ADRs, and SanDisk also fell. Today, Taiwan stocks once dropped more than 1,800 points, and Korean stocks triggered another circuit breaker; even small changes in the wind can amplify market panic.