China's chip tool push shows ASML caught in US-China squeeze

By Toby Sterling

AMSTERDAM, July 28 (Reuters) - China's launch of a homegrown type of advanced lithography chip printing machine is spotlighting how European chip tool maker ASML, whose recent share price surge made it Europe's most valuable listed company, is being squeezed between two sides.

On the one hand, U.S. controls on exports of high-tech goods to China are threatening to reduce access to a major market; and on the other, Beijing's push for technological independence in areas such as chip production raises the possibility of a China-based competitor.

Reuters reported on Tuesday that a little-known Chinese state-owned firm called Shanghai Aishengna Electronic Technology Group was leading an effort to mass produce locally made immersion deep ultraviolet (DUV) lithography tools, key to modern chipmaking.

ASML, which dominates the market for DUV and more cutting-edge EUV machines that print circuitry on AI chips, saw its shares fall some 10% in two days following this report, enough to wipe more than €60 billion off its stock market value.

Tech news site The Information first reported the Chinese attempt on Monday.

The move spotlights a risk for ASML, whose shares have skyrocketed in the last year and are up around 50% in 2026, with some investors confident it could become Europe's first trillion-dollar firm.

DAMAGE FOR NOW MAY BE LIMITED

ASML has a dominant position in the market for lithography tools, including its mid-range DUV devices. The very best chips require ASML's cutting-edge EUV tools that China cannot currently make or obtain.

The Information said China plans to make five immersion DUV tools this year and 20 in 2027, selling them to major Chinese chipmakers. That remains far below the sales of ASML, which shipped 131 such systems in 2025. So damage even in the medium term will be limited, JPMorgan analysts argued in a note.

"That said, this is another data point in China's equipment self-sufficiency story, and it raises the long-term risk to ASML's China revenue," analysts at the investment bank said.

EXPORT CONTROLS BOOST CASE FOR CHINA-MADE CHIP PRINTERS

Ipek Ozkardeskaya, analyst at Swissquote, was more downbeat, saying that the rise of a Chinese competitor could be a "nightmare scenario" for ASML if it breaks its hold on the DUV market.

ASML said this month it expects 20% of revenue, or around €9 billion worth, will come from China this year.

That's despite rounds of U.S.-led export controls that prevent the firm from selling its most advanced EUV product line in China, as well as its best immersion DUV tools.

The U.S. Congress is debating legislation that could block ASML's remaining exports of immersion DUV tools -- the segment Aishengna is targeting.

Sanne van der Lugt, a researcher affiliated with the Netherlands' Leiden Asia Center, said the development underscored how tougher rules on China could backfire.

"What this shows is that U.S. export controls successfully created a business case for Chinese lithography," she said. "It was not what they were intended to do, but that is the outcome."

Launching an immersion DUV tool, however, is not the same as becoming competitive with ASML. The Dutch company built a dominant position in DUV by steady improvement in its machines' yield and throughput over two decades, pushing aside competitors including Japan's Nikon and Canon.

Aishengna's new DUV machine will need improvement, and any chipmaker that chooses a less-capable system would normally be accepting lower productivity and a higher cost per chip.

Export controls of course change that calculation: Chinese chipmakers may be willing to accept a weaker domestic machine if the alternative is dependence on foreign tools whose sale or servicing could later be blocked by the United States.

Chinese firms "already do not really trust that they can rely on Dutch technology in the long run," Van der Lugt said.

"For Chinese customers it may be this or nothing."

(Reporting by Toby Sterling; Editing by Adam Jourdan and David Holmes)