China Achieves Semiconductor Breakthrough With First Homegrown Lithography Machine

ASML faces market pressure as domestic innovation reshapes global supply chains

January 7, 2025 — Shanghai Microelectronics Equipment (SMEE) has successfully delivered China’s first domestically developed 28nm lithography machine, marking a watershed moment in the nation’s semiconductor industry. Capable of producing 28nm chips through single exposure and achieving 11nm process nodes via multi-patterning techniques, the machine represents China’s most significant stride toward reducing reliance on foreign chipmaking technology.

The breakthrough comes amid shifting dynamics in the global semiconductor sector. ASML, the Dutch leader in advanced lithography systems, reported a steep decline in orders, with its Q3 2024 backlog plummeting to €2.63 billion—less than half of analysts’ €5.4 billion forecast. Market observers cite reduced demand from key clients like Intel, TSMC, and Samsung, alongside tightening export controls by the Dutch government, as contributing factors.

Technical Milestones and Market Impact

SMEE’s lithography system features a stage overlay accuracy of approximately 1.9nm, enabling the production of 11nm chips through advanced multi-exposure processes. While still trailing ASML’s cutting-edge extreme ultraviolet (EUV) systems capable of 3nm node production, the machine positions China to mass-produce mid-range chips critical for automotive, IoT, and industrial applications. Analysts suggest this could alleviate persistent supply chain bottlenecks in these sectors while weakening foreign suppliers’ pricing power.

“This isn’t just about catching up technologically—it’s about building strategic autonomy,” said Mark Li, semiconductor analyst at Bernstein Research. “China’s ability to manufacture 28nm and below chips domestically disrupts the global equilibrium for mature-node semiconductors, which still account for over 70% of industry demand.”

Geopolitical Context and Industry Response

The achievement follows years of U.S.-led restrictions on semiconductor technology exports to China, which accelerated Beijing’s $150 billion push for self-reliance under its “Made in China 2025” initiative. SMEE’s progress, while significant, faces lingering challenges in achieving production-scale yields and cost competitiveness compared to established players.

ASML CEO Peter Wennink acknowledged the shifting landscape in a recent earnings call: “While our EUV technology remains unparalleled, we recognize the strategic importance of mature nodes to the global economy. We’re adapting our business model to navigate these geopolitical realities.”

Market Reactions and Future Outlook

Chinese foundries like SMIC and Hua Hong Semiconductor are expected to prioritize domestically produced machines for legacy chip manufacturing. The development has already triggered stock movements, with ASML shares dropping 3.5% on the announcement, while Chinese equipment makers Naura and AMEC saw gains of up to 8%.

Industry experts caution that China’s semiconductor ambitions still face hurdles in materials science, metrology, and advanced packaging. However, this milestone underscores Beijing’s determination to localize critical technologies—a trend likely to accelerate global supply chain decoupling.

“The real test will be whether SMEE can scale production while maintaining yield rates,” said Pranay Kotasthane, chair of the High-Tech Geopolitics Program at the Takshashila Institution. “If successful, this could reconfigure the economics of mature-node chipmaking worldwide.”

Conclusion

SMEE’s breakthrough highlights China’s growing capability to circumvent foreign technology restrictions through sustained R&D investment. While ASML retains dominance in leading-edge nodes, China’s progress in mature technologies may reshape regional supply chains and compel multinationals to rethink their China market strategies.