China has started poking at the foundations of ASML’s cosy monopoly.
According to the Financial Times, investors got twitchy last week after reports that China is producing its own version of ASML’s chip-printing kit. The result was an 8 per cent kicking for ASML shares.
To be clear, ASML is not about to wake up tomorrow and find its monopoly nicked from the driveway.
China is still a technological generation behind in “deep ultraviolet” machinery. DUV is itself probably a decade behind ASML’s more advanced “extreme ultraviolet” machines.
That is a much bigger gap than China has to close in chips themselves or large language models.
China has shown it can warp-speed industrial processes when it wants to. Even so, ASML needed 12 years to ship an EUV prototype and another eight to get productivity high enough for customers to care.
Lithography is not a “good enough beats best” market. There are too many moving parts, too many ways to go wrong and too few tolerance margins. Precision is measured in atoms, which makes electric vehicle manufacturing look like hammering shelves together.
ASML gets a constant feedback loop by shipping hundreds of data-generating machines every year. China cannot match that loop yet.
Still, fractured trade has forced Beijing to have a crack. The US bars ASML from shipping EUV kit to the People’s Republic, so China has every incentive to stop begging for Dutch boxes.
The obstacles are nasty. ASML has a 40-year head start and a supply chain with roughly 100,000 different parts. The Dutch group has been careful not to create extra enemies by pricing its machines too greedily.
Its latest quarterly gross margin was 54 per cent, nearly a third lower than Nvidia’s last reported quarter. That is fat, but not obscene by AI hardware standards.
Eventually, China will get there. Talent, cash and the state’s ability to point both at a target are not in short supply. China has far more manufacturing workers and engineers than Europe or the US. Its companies are handy at building supply chains that actually work.
A country that plans in five-year chunks is unlikely to panic because EUV takes longer than a product manager’s slide deck promised.
That means ASML’s monopoly is no longer unassailable. It may lose its China sales at some point, and those were nearly a third of total revenue in 2025. Investors have priced in a lot of distant glory. Lex calculates that more than 60 per cent of ASML’s current enterprise value depends on cash flows after 2035.
