Author: Hanya Hu, Silicon Valley investor + online novel writer
Today, many people got excited over the news of the mass production of domestic DUV lithography machines.
This is not the first time such a situation has occurred. Each time there's a need to hype certain stocks, someone always brings up domestic replacements.
Today, let's take a look at what this situation actually is, without exaggeration or bias.
To state the conclusion upfront: The DeepSeek moment for domestic lithography machines is not yet established.
This article does not exaggerate or criticize but aims to help investors have a fact-based understanding.
What happened specifically: A state-owned enterprise in Shanghai has begun small-scale production of domestic immersion DUV lithography machines, planning to ship about 5 units this year to clients including SMIC, Hua Hong Semiconductor, and ChangXin Storage, with a 2027 production target of around 20 units. The equipment model corresponds to the 28nm process, with the official data stating an overall localization rate exceeding 85% and mass production yield stabilizing at over 90%. Almost at the same time, Shanghai Microelectronics' SSA800 series also announced full-scale production, with an annual capacity target of 50 units, doubling from the previous year.
These two pieces of news are often discussed together under titles like "The DeepSeek moment for lithography machines," making it sound like China has conquered the challenge of lithography machines. But upon closer inspection, the situation is not as optimistic as it appears.
For investors, this news is worth continued tracking, but it is still insufficient to directly conclude that the moat of leading lithography company ASML has started to weaken or that relevant domestic equipment companies are about to see a large-scale profit realization.
What can currently be confirmed
On July 27, Reuters cited a report from The Information stating that an unnamed state-owned enterprise in China has begun manufacturing domestic immersion deep ultraviolet lithography machines.
The report mentioned that the first batch of equipment is expected to be delivered to SMIC, Hua Hong Semiconductor, and ChangXin Storage in 2026, with plans to produce about 5 units this year and increase that to about 20 units in 2027.
At the same time, the report also clearly pointed out that this set of equipment still lags behind ASML in terms of performance and reliability, requiring further testing, and is still some way from true large-scale commercial production. The EUV equipment being developed in China is still in the prototype stage.
These limiting conditions are very important.
1. Currently, a more accurate description should be "has begun manufacturing and entered the customer introduction phase." Saying "has fully mass-produced" may lead people to mistakenly believe the equipment has completed customer acceptance and can operate long-term, stably, and at full capacity, while the available information has yet to prove this.
2. Numbers such as "supports 28nm," "localization rate exceeds 85%," and "mass production yield exceeds 90%" are circulating online. Unfortunately, there is currently no complete testing report published by equipment manufacturers, customer fabs, or authoritative institutions, nor is there clarity on the statistical criteria for these figures.
3. Especially regarding "yield 90%," whether it refers to the outgoing qualified rate of the equipment, single-layer exposure qualified rate, wafer yield, or finished chip yield makes a big difference. Without a lack of testing conditions, product types, wafer quantities, and customer acceptance standards, this number currently has insufficient analytical value.
Therefore, this article does not treat these unverified data as confirmed facts.
What has been produced this time
Lithography machines mainly have two categories: DUV and EUV. What has been produced this time is DUV.
The difference between DUV and EUV can be understood in simple terms as the difference between ordinary light and X-ray.
Of course, the DUV system also includes KrF equipment using a 248nm light source, ArF dry equipment using a 193nm light source, and even more advanced 193nm ArF immersion equipment.
The so-called immersion lithography involves adding a layer of high-purity water between the projection lens and the wafer, improving resolution by increasing numerical aperture. ASML's current immersion DUV equipment can be used for mature processes and can be involved in advanced process production through multiple patterning processes.
EUV uses extreme ultraviolet light with a wavelength of 13.5nm. Because most materials absorb EUV light, EUV equipment cannot use traditional lens systems and must complete the optical path in a vacuum environment using multilayer mirrors.
This means that transitioning from DUV to EUV involves a comprehensive change in light sources, reflection optics, vacuum systems, masks, photoresists, contamination control, precision work stages, and overall control systems, resulting in a tremendous leap in technical complexity.
Thus, progress made in domestic immersion DUV mainly fills the gap in the supply capacity of advanced DUV equipment in the domestic market. It can enhance the supply chain security of mature processes and some advanced processes but does not directly represent that the EUV challenges have been resolved.
What tasks do DUV and EUV each undertake
In modern wafer fabs, DUV and EUV will coexist for a long time.
A chip typically contains dozens of layers or more of patterns. The linewidth and precision requirements for different layers are not the same; the most critical and finely detailed few layers will use EUV, while a large number of relatively looser layers will still use DUV.
ASML has also made it clear that EUV is primarily responsible for the most complex and critical pattern layers in advanced chips, while the remaining large number of pattern layers continue to use different types of DUV equipment.
The capabilities of DUV should not be simply understood as "can only manufacture mature chips".
Through double, quadruple, or even more complex multiple patterning, DUV can extend the process down to 7nm. In the past, SMIC was able to manufacture 7nm chips in the absence of EUV equipment, with the core path relying on imported immersion DUV equipment combined with complex multiple patterning processes.
Taiwan Semiconductor Manufacturing Company's initial N7 process primarily used DUV, while the N7+ process, which entered mass production in 2019, was TSMC's first large-scale use of EUV.
The problem is, the more advanced the node, the more exposure instances, mask quantities, overlay accuracy, and process steps DUV requires, prolonging the production cycle, increasing defect probabilities and manufacturing costs.
The main value of EUV lies in reducing the complex DUV multiple patterning steps for some key layers, thereby decreasing mask quantities, process complexity, and defect risk. ASML's annual report shows that EUV can help clients transform some complex multiple patterning into relatively simple single patterning.
What does the volume of 5 units truly mean
Looking at just 5 units, it's easy to go to extremes.
Some people feel the number is too small to matter at all, while others think that as long as something is produced, it means ASML's monopoly has ended.
Both judgments are overly simplistic.
According to ASML's annual report, ASML confirmed sales of 131 ArF immersion lithography machines in 2025. In the second quarter of 2026, ASML announced that its annual production capacity for immersion DUV in 2026 is about 130 units and plans to increase that by about 30% in 2027.
Comparing these numbers roughly, the 5 units planned for domestic production this year would represent about 4% of ASML's annual immersion DUV sales.
Moreover, lithography machines cannot be simply compared by quantity.
The key metrics that truly determine wafer capacity include hourly wafer throughput, overlay accuracy, equipment availability, continuous running time, defect rates, maintenance cycles, and compatibility with existing production lines.
Current public parameters of ASML's immersion DUV equipment show a throughput of up to 330 wafers per hour, with overlay accuracy of about 2.5nm. Comparatively, the domestic equipment has yet to publicly disclose comparable complete parameters.
Therefore, the most significant implication of these 5 units in the short term is entering real production lines of SMIC, Hua Hong, and ChangXin, to verify whether the equipment can operate stably and consistently, cooperate smoothly with etching, thin film deposition, cleaning, inspection, and measuring equipment, and whether it can secure a second batch order from clients.
If any key metric fails to meet mass production standards, the equipment may remain in testing and verification stages for a long time.
From this perspective, 5 units represent the starting point for industrialization but do not yet form the production capacity to significantly replace imported equipment.
It is unwise to mix in rumors about Shanghai Microelectronics
Currently, there is a claim in the market that Shanghai Microelectronics' SSA800 series has achieved full-scale production, with an annual capacity of 50 or even 120 units.
These data exist in multiple versions, and there is a lack of clear company announcements, customer acceptance reports, and disclosures from wafer fabs.
As of May 2025, when Reuters conducted a survey of China’s semiconductor equipment industry, it still described the lithography equipment commercially supplied by Shanghai Microelectronics as 90nm capable. At that time, despite SiCarrier having applied for multiple DUV-related patents, it had not publicly demonstrated a complete product.
Technological R&D can indeed make progress within a year, but until new formal evidence is obtained, it is unwise to directly add the rumored SSA800 production figures to the 5 units reported here, let alone concluding that "China can now produce hundreds of immersion DUVs annually."
For highly complex equipment like lithography machines, achieving formal release, completing manufacturing, entering customer factories, passing acceptance, and reaching stable mass production are entirely different stages.
A larger gap still exists in EUV
China's EUV development has made some engineering progress.
A Reuters investigation in December 2025 indicated that a domestic EUV prototype has been built in Shenzhen. This equipment has been capable of generating extreme ultraviolet light and has entered the testing phase, but usable chips had not yet been manufactured at that time.
The related project proposed to utilize the domestic prototype to fabricate working chips by 2028, but those close to the project believe 2030 might be a more realistic target. The report also noted that China still faces significant challenges in core areas such as high-precision reflective optics.
This indicates that domestic EUV has taken an important step, and engineering feasibility is gradually being verified.
However, transitioning from "capable of generating EUV light" to "capable of consistently manufacturing advanced chips" still requires resolving a series of issues including light source power and stability, mirror precision, masks, photoresists, contamination control, overlay accuracy, throughput, and long-term reliability.
ASML went through nearly twenty years from the first functioning EUV prototype to actually entering commercial mass production, investing billions of euros in R&D funds.
Domestic EUV may accelerate its catch-up, but it is still in the prototype testing phase and should not be discussed on the same level of industry maturity as the immersion DUV that is already in initial production.
Why the analogy of the “DeepSeek moment” does not hold
The “DeepSeek moment for lithography machines” is catchy but can easily mislead investors.
The impact brought about by DeepSeek primarily stems from algorithm architecture, training methods, and engineering efficiency. In the software domain, once a solution is proven effective, other teams can quickly read papers, run code, adjust models, and verify results, often iterating in days or weeks.
Lithography machines face precise manufacturing and complex physical systems.
Whether a device can maintain overlay accuracy long-term requires extensive validation over numerous wafers and prolonged operation. Factors such as light source stability, lens lifespan, vibration control, contamination control, work stage fatigue, part consistency, and maintenance systems must accumulate data through real production.
Occasional success of a prototype in achieving exposure is entirely different from the engineering requirements of stable operation 24 hours a day.
Therefore, this latest advancement in domestic DUV is closer to a long-term project starting to enter the industrial verification phase. It relies on continuous investment, talent accumulation, supply chain coordination, and collaborative debugging with clients, and it is challenging to complete an industrial reversal through a single technological release.
The true turning point for China's lithography machines in the future may not manifest as a sensational press conference, but rather as a consistent increase in customer acceptance numbers, rising equipment availability, expanding repeat orders year by year, and a declining import ratio of key components.
Where does domestic replacement currently stand?
China's progress in semiconductor equipment localization has been rapid in recent years, but differences between equipment categories are significant.
A Reuters survey in 2025 showed that China's localization rate for equipment such as debonding and cleaning has reached about 50%, while the overall self-sufficiency ratio for equipment supporting 7nm and below processes remains lower than 10%. Lithography equipment is one of the most notable shortfalls.
On the other hand, Chinese fabs have already accumulated a substantial amount of imported DUV equipment.
A report from the American Enterprise Institute in 2026 estimated that Chinese customers purchased about 70% of ASML's global immersion DUV equipment in 2024, which could be close to 90 units. These imported machines have become a crucial foundation for China to manufacture 7nm chips.
It is worth noting that this report comes from a U.S. policy think tank with a stance promoting expanded export restrictions, and its capacity estimates should not be directly treated as neutral industry statistics.
Nonetheless, it at least illustrates one point: China's current capabilities in mature processes and some advanced processes still heavily rely on ASML equipment imported in the past. The domestic equipment plans to produce 5 units this year, and even if all pass verification, it remains difficult to replace the established scale of imported equipment in the short term.
Its strategic value primarily lies in establishing a second source of supply for the future, reducing the single dependence on imported equipment for new capacity, and accumulating engineering experience for more advanced domestic equipment.
What does this mean for investors
Firstly, it must be stated that this news is a long-term positive signal for the domestic semiconductor equipment industry chain.
It indicates that the investments made over the past years in light sources, lenses, work stages, control systems, measurement systems, and complete machine integration are beginning to show signs of moving from R&D to customer sites.
However, investors cannot prematurely conclude from just one piece of news that domestic equipment companies are about to unleash large-scale production or that ASML's global competitive advantage is about to vanish.
ASML confirmed selling 131 immersion DUV and 48 EUV machines in 2025. The company plans to expand DUV and EUV production capacity in 2026, indicating that global advanced logic and memory customer demands remain strong.
Domestic equipment can gain synergistic support from policies, capital, and customers in the Chinese market, but after entering wafer fabs, it will still ultimately need to pass scrutiny regarding production efficiency and manufacturing costs.
In the next two to three years, the truly measurable indicators to track include whether customers complete formal acceptance, how many wafers the equipment can process per hour, whether overlay accuracy can be maintained long-term, whether equipment availability meets commercial production requirements, whether defect rates are stable during continuous operation, and whether the first batch of customers is willing to place second and third orders.
Attention should also be paid to whether key optics, light sources, precision motion systems, and control components can gradually achieve domestic replacement, and whether after-sales service teams can quickly complete repairs and parts replacements.
For specific listed companies, it is necessary to verify what exactly it has supplied, whether it has received formal orders, how much revenue and profit the related business can contribute, and whether order growth can cover R&D and capacity expansion investments.
Final judgment
Based on the existing publicly available information, this development is better defined as the domestic immersion DUV beginning to move from R&D and prototype verification towards initial production and customer introduction.
Planning to produce about 5 units, the quantity is limited, but sufficient to kickstart genuine production line validation. As long as the equipment can pass customer acceptance and obtain repeat orders, its significance will far exceed the 5 units themselves.
At this stage, it still does not suffice to alter the global competitive landscape of lithography machines, nor does it imply that China has dealt with the bottleneck of advanced process lithography equipment.
Real industrial turning points require seeing several consecutive signals: stable operation of the first batch of equipment, client follow-up orders, annual production rising from single digits to dozens or even hundreds of units, key parameters approaching international mainline levels, and a continuous decline in the dependence on imported core components.
Until these indicators are achieved, the most reasonable attitude is to acknowledge progress, respect engineering laws, and avoid prematurely converting technical news into industrial victories and investment gains.
As for the so-called “DeepSeek moment for domestic lithography machines,” it is still far from being realized.
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