China’s reported chip breakthrough comes with some big caveats

ASML’s stock fell Tuesday after a report that China is mass-producing a critical tool that the Dutch tech giant has long held a monopoly over.

The decline came amid a steep sell-off in global semiconductor stocks as investors continued to grapple with uncertainty about the sector. ASML was last trading down 1.8%, but the stock is up over 123% this year.

Analysts told CNBC that while reports on China entering a market that ASML dominates may raise some concerns, the developments are unlikely to shake the Dutch company’s dominance, adding there are some big caveats to the story.

“I would take this with a pinch of salt as what [China does] could be limited to the very low end,” Stephane Houri, head of equity research at ODDO BHF, told CNBC.

What happened?

The Information on Monday reported that an unnamed Chinese company has begun manufacturing an immersion deep ultraviolet lithography (DUV) machine, citing people familiar with the matter.

The tools are expected to be delivered this year to China’s biggest chip manufacturers, including Semiconductor Manufacturing International Corp. and Changxin Memory Technologies (CXMT), which went public this week.

Why did it spark a sell-off?

Investors are concerned that if China continues to build out its homegrown semiconductor technology, it could cut off some of the biggest U.S., European and other Asian firms from the huge market.

An immersion DUV machine is a tool that is used to etch circuit patterns into silicon wafers. It is a critical part of the semiconductor manufacturing process that is purchased by foundries such as Taiwan Semiconductor Manufacturing Co. (TSMC) and Intel.