China’s first domestically produced immersion lithography machines will not displace European semiconductor equipment overnight, although their arrival has begun to change the commercial assumptions surrounding ASML.

Shanghai Aishengna Electronic Technology Group is leading an effort to produce immersion deep ultraviolet, or DUV, systems used to print intricate circuit patterns onto silicon wafers. Industry estimates suggest an initial target of five machines during 2026, followed by 20 in 2027, compared with 131 immersion systems shipped by ASML last year.

Those volumes remain small, while Chinese equipment continues to trail ASML’s machines in throughput, reliability, and manufacturing yield. Nor has China reproduced extreme ultraviolet lithography, the more advanced technology required for the smallest and most sophisticated chips, over which the Dutch manufacturer retains a global monopoly.

Investors nevertheless removed around €60 billion from ASML’s market value over two trading days as the prospect of a domestic Chinese competitor altered expectations about the company’s longer term position. The immediate threat to revenue is limited, but semiconductor equipment develops through years of deployment, maintenance, and gradual engineering improvement rather than a single technical breakthrough.

Restrictions are creating a replacement market

The Netherlands has tightened export licensing for advanced semiconductor manufacturing equipment under sustained pressure from the United States, preventing ASML from supplying EUV systems to China and restricting its most capable immersion DUV machines. Those controls are intended to slow Beijing’s access to technology that supports advanced computing, artificial intelligence, and military applications.

However, the restrictions also improve the economics of domestic substitution. Chinese chipmakers may accept equipment that is initially less productive when the alternative is dependence on foreign systems whose sale, servicing, or upgrades could be withdrawn through a licensing decision. State backed buyers can also tolerate weaker short term returns while domestic suppliers learn from repeated use.

ASML still expects China to contribute around a fifth of its revenue during 2026, amounting to approximately €9 billion. Much of that business comes from less advanced DUV equipment used to manufacture industrial, automotive, communications, and consumer chips, which remain economically important even when they are several generations behind leading processors.

Chinese revenue supports ASML’s research spending, manufacturing capacity, and a European supply chain containing specialist optics, mechatronics, materials, and precision engineering businesses. Yet every further restriction increases the value of a local alternative to Chinese customers, while each domestic installation gives engineers more operating data with which to improve.

A monopoly can weaken before it disappears

Lithography remains one of the semiconductor industry’s hardest markets to enter because optics, light sources, software, materials, positioning, and maintenance must function as a single production system. A machine that can expose a wafer is not necessarily economical inside a high volume fabrication plant, where small differences in yield can destroy the financial case for a process.

ASML’s advantage consequently rests on more than patents or one machine design. Decades of research, partnerships with European optical and engineering specialists, close integration with major chipmakers, and a global service network have created knowledge that a new entrant cannot purchase quickly.

Even so, a Chinese supplier does not need to challenge EUV immediately to weaken ASML’s position. Capturing parts of the mature and mid-range DUV market would reduce European sales, deepen local customer relationships, and provide revenue for more capable systems. It could also support countries and manufacturers that face difficulty obtaining Western equipment, creating a parallel supply chain around Chinese tools.

European semiconductor policy therefore carries an unavoidable trade-off. Export controls can delay access to particular capabilities, but they cannot remove the incentive to recreate them. Their effectiveness depends on whether the intervening years are used to extend Europe’s technical lead, protect vulnerable supply chain knowledge, and build demand beyond China.

ASML continues to invest heavily in high numerical aperture EUV and subsequent generations of lithography, while European governments increasingly treat semiconductor capacity as an economic security concern. Maintaining that advantage will also require reliable energy, industrial sites, specialist workers, research funding, and enough regional chip manufacturing to support the equipment ecosystem.

China’s first immersion machines remain far behind ASML’s best systems, although their strategic value lies in Beijing’s willingness to accept a weaker domestic tool rather than permanent dependence on an increasingly restricted European one.