How ASML Serves China’s Chip Makers: Semiconductor Case Study

# How ASML Serves China’s Chip Makers: Semiconductor Case Study

ASML Holding N.V. (阿斯麦, ASML) supplies over 60% of the world’s advanced lithography systems, but its market share for deep ultraviolet (DUV) lithography exceeds 80%—a specific number that underscores its dominance in the 7nm to 14nm semiconductor node range. For Chinese chip makers, ASML serves as both a critical enabler and a strategic bottleneck, as the Dutch company is the sole global supplier of extreme ultraviolet (EUV) lithography machines, which are essential for manufacturing sub-7nm chips. This case study examines how ASML navigates export restrictions, maintains its installed base in China, and shapes the trajectory of the country’s semiconductor ambitions through its DUV and service operations.

The ASML Monopoly: Why Chinese Chip Makers Cannot Bypass Dutch Lithography

ASML holds an effective monopoly on advanced lithography equipment. The company produces 100% of the world’s EUV machines and approximately 85% of the DUV market. No other company—including Nikon, Canon, or Chinese rival Shanghai Micro Electronics Equipment (SMEE, 上海微电子装备, shàng hǎi wēi diàn zǐ zhuāng bèi)—can match ASML’s resolution, overlay accuracy, or throughput for leading-edge nodes.

This monopoly has direct consequences for Chinese semiconductor players. As of early 2025, Chinese chip makers operate over 200 ASML DUV systems across fabs run by SMIC (中芯国际, zhōng xīn guó jì), Hua Hong Semiconductor (华虹半导体, huá hóng bàn dǎo tǐ), and CXMT (长鑫存储, zhǎng xīn cún chǔ). These machines form the backbone of China’s 28nm, 14nm, and emerging 7nm production lines.

The geopolitical tension creates a paradox. China accounted for approximately 15% of ASML’s total revenue in 2024, equivalent to roughly €3.8 billion. Losing access to the Chinese market would significantly impact ASML’s top line, yet Dutch and US export controls restrict the delivery of EUV and the most advanced DUV models (TWINSCAN NXT:2000i and above) to Chinese customers without special licenses.

Navigating Export Controls: DUV vs. EUV in China’s Fabs

Export controls categorically ban the sale of EUV lithography equipment to China. The Dutch government, under pressure from the United States, revoked ASML’s export license for EUV in 2019, effectively freezing Chinese access to the 5nm and 3nm nodes. Chinese fabs cannot manufacture chips at these geometries without EUV, which limits SMIC’s “N+2” process to roughly 7nm equivalent using quadruple-patterning DUV—a technically difficult and cost-prohibitive approach.

However, ASML continues to serve Chinese customers through DUV sales. The TWINSCAN NXT:1980Di and 1970Ci models remain exportable to China without individual licenses. These systems enable 28nm to 14nm production, covering the majority of China’s current manufacturing needs for logic chips, memory, and analog semiconductors. In 2024, ASML shipped approximately 30 DUV systems to China, representing a significant portion of its global DUV volume.

A secondary but critical service business sustains ASML’s Chinese operations. The company employs over 1,500 staff in China across offices in Beijing, Shanghai, Shenzhen, and Wuhan, providing installation, maintenance, and spare parts for the existing installed base. Service contracts generate recurring revenue of approximately €1.2 billion annually from China alone, and they ensure that existing fabs continue operating even as new machine sales face restrictions.

The bottom line is clear: ASML serves China’s chip makers primarily through DUV sales and service, while EUV remains a forbidden technology. This bifurcated strategy allows ASML to comply with Western export controls while maintaining a profitable position in the world’s largest semiconductor market.

Strategic Implications for Chinese Semiconductor Champions

SMIC remains ASML’s most important Chinese customer. The foundry operates a fleet of approximately 80 ASML DUV tools across its four 300mm fabs in Shanghai, Beijing, Shenzhen, and Tianjin. SMIC uses these machines to produce 28nm, 14nm, and its proprietary “N+1” (roughly 10nm) and “N+2” (roughly 7nm) processes. Without access to EUV, SMIC cannot progress below 7nm, a critical constraint as global competitors TSMC and Samsung move to 3nm.

Hua Hong Semiconductor and CXMT represent the second tier of ASML’s Chinese customer base. Hua Hong, focused on power management, analog, and embedded memory, relies on 55nm to 90nm ASML DUV tools for automotive and industrial chips. CXMT uses ASML’s 1970Ci and 1980Di systems for DRAM production at 17nm to 19nm nodes, competing directly with Micron and Samsung in the memory space. For both companies, ASML’s installed base stability and spare parts availability are existential concerns.

The risk of a complete service cutoff looms over these relationships. If the US or Dutch governments expand export controls to include spare parts or service personnel, Chinese fabs could face production halts within three to six months. This dependency creates a powerful incentive for China to accelerate domestic lithography development, though progress remains slow. SMEE delivered only two lithography systems in 2024, both limited to 90nm resolution—more than a decade behind ASML.

Chinese Alternatives: Can SMEE or Other Players Replace ASML?

SMEE (上海微电子装备, shàng hǎi wēi diàn zǐ zhuāng bèi) is China’s only domestic lithography system manufacturer. Its most advanced product, the SSA/900B, achieves 90nm resolution using 193nm argon fluoride (ArF) DUV light. This is sufficient for legacy nodes but falls far short of the 7nm to 3nm capabilities required for modern logic and memory. SMEE aims to release a 28nm-capable system by 2027, but industry analysts consider this timeline highly optimistic due to challenges with optics, stage precision, and illumination sources.

Beyond SMEE, China’s National Integrated Circuit Industry Investment Fund (大基金, dà jī jīn) has invested over ¥30 billion (approximately €4 billion) in alternative lithography approaches. These include electron-beam direct write, nanoimprint lithography (NIL) by startup Canon Nano-Craft, and multi-beam maskless lithography. None of these technologies has reached commercial viability for mass production. Even the most advanced Chinese R&D prototype cannot expose more than five wafers per hour, compared to ASML’s 200+ wafers per hour for DUV systems.

The reality is stark: China will remain dependent on ASML for at least five to ten years for all nodes below 28nm. During this period, the primary strategy for Chinese chip makers is to maximize the utility of existing ASML DUV equipment through advanced patterning techniques, multi-patterning, and design-technology co-optimization (DTCO). This approach enables 7nm-class production without EUV but at roughly double the cost and with lower yields than EUV-based manufacturing.

Risk Mitigation: How Chinese Chip Makers Manage ASML Dependency

Chinese foundries and memory manufacturers have adopted a three-pronged risk mitigation strategy. First, they stockpile spare parts for critical ASML systems, maintaining inventory levels of six to twelve months for high-mortality components such as laser heads, lenses, and wafer stages. Second, they train in-house maintenance teams to reduce reliance on ASML’s expatriate engineers, who could be withdrawn under tighter export controls. Third, they design chips that are “lithography-aware,” using design rules that maximize output from available ASML DUV tools.

The Chinese government has also established a national-level lithography research program under the Ministry of Industry and Information Technology (工信部, gōng xìn bù). This program coordinates efforts among SMEE, the Chinese Academy of Sciences (中国科学院, zhōng guó kē xué yuàn), and multiple universities to develop indigenous 28nm lithography by 2027. However, the program faces fundamental bottlenecks in ultra-precision optics, high-power laser sources, and multi-axis stage control—areas where ASML spent over 30 years and €20 billion in cumulative R&D to achieve leadership.

China’s total lithography R&D spending across all entities is estimated at approximately €2 billion per year, compared to ASML’s own R&D budget of €4.3 billion in 2024. The gap is not merely financial but technological and organizational—ASML’s supply chain includes over 5,000 specialized component suppliers across Europe, the US, and Japan, a network that China cannot replicate quickly.

NEXT STEPS: Three Decision-Path Recommendations

For foreign semiconductor equipment suppliers evaluating China market exposure: Prioritize service and spare parts operations as the most defensible and profitable segment. New machine sales face increasing regulatory risk, but the installed base of over 200 ASML DUV systems in China creates a multi-year service annuity. Consider partnering with Chinese local service providers to reduce political friction while maintaining revenue streams.

For Chinese chip makers managing supply chain risk: Accelerate dual-sourcing for non-lithography tools (etch, deposition, metrology) to free budget for ASML DUV lithography investments. Invest aggressively in advanced DUV patterning techniques and DTCO to extend the life of current ASML assets. Simultaneously, build contractual protections for spare parts and service continuity into all new ASML purchases, including penalty clauses for service interruption.

For investors and analysts tracking the China semiconductor ecosystem: Monitor ASML’s quarterly China revenue percentage as a leading indicator of export control policy direction. A sustained decline below 10% of total revenue would suggest tightening restrictions, while a rise above 20% signals relative accommodation. Focus on Chinese fab equipment companies that support ASML’s installed base, as these firms benefit from the maintenance boom regardless of new machine sales restrictions.

— China Gateway 360 —