Author: Hanya Hu, Silicon Valley investor + web novel author
Today, a piece of news about the mass production of a domestic DUV lithography machine has sent many people into a frenzy of excitement.
In fact, this is not the first time this has happened. Whenever certain stocks need to be hyped, people always bring up domestic substitution.
Today, without exaggeration or belittling, let’s look at what’s really going on with this matter.
First, the conclusion: The “DEEPSEEK moment” for domestic lithography machines has not yet materialized.
This article neither exaggerates nor downplays, aiming to help investors gain a fact-based understanding.
What exactly is happening: A Shanghai-based state-owned enterprise has begun small-batch production of a domestic immersion DUV lithography machine. It plans to ship about 5 units this year, to SMIC, Hua Hong Semiconductor, and ChangXin Memory Technologies. The 2027 production target is raised to around 20 units. The equipment model corresponds to the 28nm process, with official figures claiming an overall domestication rate exceeding 85% and a stable production yield above 90%. Almost simultaneously, Shanghai Micro Electronics Equipment’s SSA800 series was also announced to be in full mass production, with an annual capacity target of 50 units, doubling year-on-year.
These two pieces of news are often lumped together, with headlines like “The DeepSeek moment for lithography machines,” making it read as though China has already overcome the lithography hurdle. Upon closer examination, things are not as optimistic as imagined.
For investors, this news is worth tracking continuously, but for now it does not suffice to directly conclude that the moat of the leading lithography company ASML has been breached, nor does it prove that related domestic equipment companies are about to see large-scale profit realization.
What Can Be Confirmed So Far
On July 27, Reuters, citing a report from The Information, stated that an unnamed Chinese state-owned enterprise has started manufacturing a domestic immersion deep ultraviolet lithography machine.
The report mentioned that the first batch of equipment is expected to be delivered to SMIC, Hua Hong Semiconductor, and ChangXin Memory Technologies in 2026, with about 5 units planned for production this year, and the plan is to increase to around 20 units in 2027.
At the same time, the report also explicitly pointed out that this equipment still lags behind ASML in performance and reliability, requires further testing, and is still some distance from true large-scale commercial production. China’s EUV equipment under development is still in the prototype stage.
These qualifications are very important.
A more accurate description at present should be “has started manufacturing and entered the customer introduction phase.” The phrase “already in full mass production” can easily mislead people into thinking that the equipment has passed customer acceptance and can operate stably, long-term, and at full capacity in a fab, which public information has not yet proven.
Figures like “supports 28nm,” “domestication rate exceeds 85%,” and “production yield exceeds 90%” are also circulating online. Unfortunately, no complete test reports have been released by the equipment manufacturer, the customer fabs, or authoritative bodies, nor have the statistical definitions of these figures been seen.
In particular, the “yield rate of 90%” — whether it refers to equipment factory acceptance rate, single-layer exposure success rate, wafer yield, or complete chip yield, makes a huge difference. Without test conditions, product type, wafer quantity, and customer acceptance criteria, this figure currently lacks sufficient analytical value.
Therefore, this article does not treat these un-independently verified data points as established facts.
What Has Actually Been Achieved This Time
Lithography machines mainly fall into two categories: DUV and EUV. What has been achieved this time is DUV.
The difference between DUV and EUV, in terms that a layperson can grasp, is akin to the difference between ordinary light and X-rays.
Of course, the DUV family also includes KrF equipment using a 248nm light source, ArF dry equipment using a 193nm light source, and more advanced 193nm ArF immersion equipment.
So-called immersion lithography involves adding a layer of high-purity water between the projection lens and the wafer to improve resolution by increasing the numerical aperture. ASML’s current immersion DUV equipment can be used for mature processes and, through multiple patterning techniques, can also participate in advanced process production.
EUV, on the other hand, 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 rely on multilayer mirrors in a vacuum environment to complete the optical path.
This means that moving from DUV to EUV involves sweeping changes in the light source, reflective optics, vacuum system, mask, photoresist, contamination control, precision wafer stage, and overall machine control system, resulting in a huge leap in technical complexity.
Therefore, the progress made in domestic immersion DUV primarily fills a gap in the domestic supply of advanced DUV equipment. It can enhance supply chain security for mature processes and some advanced processes, but it does not directly mean that the EUV challenge has been solved.
What Tasks Do DUV and EUV Respectively Perform
In modern fabs, DUV and EUV will coexist for a long time.
A single chip typically contains dozens or even more layers of patterns. The linewidth and precision requirements for different layers vary; the most critical, finest few layers use EUV, while a large number of relatively relaxed layers still use DUV.
ASML also makes clear that EUV is primarily responsible for the most complex and critical pattern layers in advanced chips, while the large number of remaining pattern layers continue to use different types of DUV equipment.
DUV’s capability cannot be simply understood as “only capable of manufacturing mature chips.”
Through double, quadruple, and even more complex multiple patterning, DUV can extend processes down to the 7nm class. The reason SMIC was previously able to manufacture 7nm-class chips without EUV equipment was precisely by relying on imported immersion DUV equipment combined with complex multiple patterning processes.
TSMC’s original N7 process mainly used DUV; it was the N7+ that entered mass production in 2019 that became TSMC’s first process to use EUV on a large scale.
The problem is that the more advanced the node, the more exposure steps, masks, overlay precision requirements, and process steps DUV requires, which lengthens the production cycle and increases defect probability and manufacturing cost.
The main value of EUV is to reduce complex DUV multiple patterning steps on certain critical layers, thereby lowering mask count, process complexity, and defect risk. ASML’s annual report shows that EUV can help customers convert some complex multiple patterning into relatively simple single patterning.
Therefore, even if the domestic immersion DUV passes customer verification, it mainly addresses the question of whether China can independently obtain high-performance DUV equipment. It may have strategic significance for 7nm-class processes, but it still cannot at all solve the economic viability issues for mainstream advanced processes such as 5nm, 3nm, and 2nm.
What Does 5 Units Really Mean
Looking at 5 units in isolation easily leads to two extremes.
Some think the number is too small to be meaningful. Others believe that just producing them means ASML’s monopoly is over.
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 disclosed that its current annual capacity for immersion DUV in 2026 is about 130 units, with plans to increase it by about 30% in 2027.
Roughly comparing by unit count, the 5 units planned for production this year by the domestic equipment amount to about 4% of ASML’s annual immersion DUV sales.
Moreover, lithography machines cannot be compared simply by unit count.
The metrics that truly determine wafer output include wafer throughput per hour, overlay accuracy, equipment availability, uptime, defect rate, maintenance cycle, and the degree of compatibility with existing production lines.
Public specifications for a current ASML immersion DUV tool show a throughput of up to 330 wafers per hour and a matched machine overlay accuracy of about 2.5nm. The domestic equipment has not yet released complete comparable parameters.
Therefore, the greatest near-term significance of these 5 units is to enter real production lines at SMIC, Hua Hong, and ChangXin, verifying whether the equipment can operate stably and continuously, integrate smoothly with etching, thin-film deposition, cleaning, inspection, and metrology tools, and secure follow-on orders from customers.
If any key metric fails to meet mass production standards, the equipment could remain stuck in the trial and verification phase for a long time.
From this perspective, 5 units represent the starting point of industrialization; they have not yet formed a production capacity capable of replacing imported equipment on a large scale.
Don’t Lump in the Rumors about Shanghai Micro Electronics
There is also a claim circulating in the market that Shanghai Micro Electronics’ SSA800 series has already entered full mass production, with an annual capacity reaching 50 or even 120 units.
These figures come in multiple versions and lack clear company announcements, customer acceptance reports, and fab procurement disclosures.
As of May 2025, when Reuters investigated China’s semiconductor equipment industry, it still described Shanghai Micro Electronics’ commercially supplied front-end lithography capability as 90nm-class. At that time, although SiCarrier had already applied for multiple DUV-related patents, it had not yet publicly demonstrated a complete product.
It is entirely possible that technological R&D has made progress in a year, but without new formal evidence, it is not appropriate to simply add the rumored SSA800 production volume to the 5 units reported this time, much less to draw the conclusion that “China can already produce over a hundred immersion DUV machines per year.”
For a highly complex piece of equipment like a lithography machine, formal launch, completion of manufacturing, delivery to a customer’s fab, passing acceptance testing, and stable mass production are completely distinct stages.
An Even Larger Gap Remains in EUV
China’s EUV R&D has made certain engineering progress.
Reuters’ December 2025 investigation showed that China had built a domestic EUV prototype in Shenzhen. The device was capable of generating extreme ultraviolet light and had entered the testing phase, but had not yet produced a usable chip at that time.
The relevant project proposed using the domestic prototype to produce working chips by 2028, while people close to the project believed 2030 might be more realistic. The report also pointed out that China still faces significant difficulties in critical areas such as high-precision reflective optics.
This shows that domestic EUV has taken an important step, with engineering feasibility gradually being validated.
But the journey from “being able to generate EUV light” to “being able to stably manufacture advanced chips” still requires solving a series of issues including light source power and stability, mirror accuracy, mask, photoresist, contamination control, overlay accuracy, throughput, and long-term reliability.
ASML spent nearly two decades and invested billions of euros in R&D from its first working EUV prototype to true commercial mass production.
Domestic EUV may accelerate its catch-up in the future, but it is still in the prototype testing stage and cannot be discussed on the same level of industrial maturity as immersion DUV, which has already begun initial production.
Why the “DeepSeek Moment” analogy doesn’t hold
“The DeepSeek moment for lithography machines” makes for a catchy phrase but easily misleads investors.
The impact DeepSeek delivered came mainly from algorithmic architecture, training methods and engineering efficiency. Once a software solution is proven effective, other teams can quickly read papers, run code, adjust models and verify results, with iteration cycles often measured in days or weeks.
Lithography machines, on the other hand, involve precision manufacturing and complex physical systems.
Whether a machine can maintain overlay accuracy over the long term requires verification through large numbers of wafers and extended operation. Light-source stability, lens lifetime, vibration control, contamination control, wafer-stage fatigue, component consistency and maintenance systems all need to accumulate data from real production.
An occasional successful exposure by a prototype is an entirely different engineering requirement from stable 24-hour daily operation.
For this reason, this domestic DUV breakthrough is more akin to a long-term engineering project beginning to enter industrial verification. It relies on sustained investment, talent accumulation, supply-chain maturation and joint commissioning with customers, and is difficult to turn around overnight with a single technology announcement.
In the future, the real turning point for China’s lithography machines may not come in the form of a splashy launch event, but is more likely to emerge as the number of customer sign-offs keeps rising, equipment availability keeps improving, repeat orders grow year by year, and the proportion of imported critical components gradually declines.
Where does domestic substitution stand now?
Localization of China’s semiconductor equipment has progressed rapidly in recent years, but the gap varies enormously across different equipment categories.
A 2025 Reuters investigation showed that China’s localization rate for certain equipment such as photoresist stripping and cleaning has reached about 50%, while the overall self-sufficiency rate for equipment capable of supporting 7nm and below remains below 10%. Lithography equipment is one of the most conspicuous weaknesses.
On the other hand, China’s fabs have already accumulated a large installed base of imported DUV equipment.
A 2026 report by the American Enterprise Institute estimates that Chinese customers bought roughly 70% of ASML’s global immersion DUV units in 2024, possibly close to 90 tools. These imported tools have formed an important foundation for China’s ability to produce 7nm-class chips.
It should be noted that this report comes from a US policy think tank and carries a policy stance that pushes for expanded export restrictions; its capacity projections cannot be taken directly as neutral industry statistics.
Yet it at least illustrates one point: China’s current mature-node capabilities and some advanced-node capabilities remain highly dependent on previously imported ASML equipment. Domestic equipment is planned to produce five units this year; even if all of them pass verification, it will be very difficult in the near term to replace the already sizable installed base of imported equipment.
Its strategic value lies primarily in building a second source of supply for the future, reducing over-reliance on imported equipment for new capacity additions, and accumulating engineering experience for more advanced domestic equipment.
What this means for investors
First, it should be made clear that this news is a positive long-term signal for the domestic semiconductor equipment supply chain.
It shows that years of investment in light sources, projection optics, wafer stages, control systems, metrology systems and system integration are beginning to show signs of moving from R&D into customer sites.
What investors cannot do for the moment, however, is leap from one piece of news to the conclusion that domestic equipment companies are about to see massive volume shipments, or that ASML’s global competitive edge is about to disappear.
ASML confirmed the sale of 131 immersion DUV and 48 EUV units in 2025. The company still plans to expand both DUV and EUV capacity in 2026, indicating that demand from global advanced logic and memory customers remains strong.
Domestic equipment can receive policy support, capital backing and customer collaboration in the Chinese market, but once inside a fab, it still ultimately has to be tested on production efficiency and manufacturing cost.
Over the next two to three years, the metrics truly worth tracking include whether customers complete formal sign-off, how many wafers per hour the equipment can process, whether overlay accuracy can be sustained over the long term, whether equipment availability meets commercial production requirements, whether defect rates remain stable during continuous operation, and whether the first group of customers is willing to place second and third batches of orders.
Attention should also be paid to whether critical optics, light sources, precision motion systems and control components can progressively achieve domestic substitution, and whether after-sales service teams can quickly complete repairs and part replacements.
For specific listed companies, it is necessary to verify exactly which components they are supplying, whether they have obtained formal orders, how much revenue and profit the related business can contribute, and whether order growth can cover R&D and capacity-expansion outlays.
Final assessment
Synthesizing currently available public information, this breakthrough is best defined as a step for domestic immersion DUV to begin moving from R&D and prototype verification toward initial production and customer adoption.
The plan to produce roughly five units is a limited quantity, but sufficient to launch real production-line verification. As long as the equipment passes customer sign-off and wins repeat orders, its significance will far exceed the five units themselves.
At this stage, it is not enough to change the global competitive landscape of lithography, nor is it enough to assert that China has solved the bottleneck in advanced-node lithography equipment.
A genuine industry turning point will require seeing a series of consecutive signals: the first batch of equipment running stably, customers placing repeat orders, annual output rising from single digits to dozens or even over a hundred units, key parameters approaching international mainstream levels, and import dependence on core components declining continuously.
Until those metrics are met, the most sensible attitude is to recognize the progress, respect the laws of engineering, and avoid prematurely converting technical news into industrial victory and investment returns.
As for the so-called “DeepSeek moment for domestic lithography machines,” that moment is still far from arriving.