After a strong rally from multiyear lows in early October, shares of leading chip equipment maker ASML (ASML 1.46%) are falling once again. While tech stocks have been selling off in general in the final days of 2022, ASML shareholders have extra reason for worry: Chinese tech giant Huawei just filed for a patent on the same type of advanced chipmaking equipment ASML has a monopoly on. 

For years, it's been a closely held belief among chip industry insiders, tech researchers, and Wall Street analysts that ASML's lead is so great that no competitors will be able to catch up. On the surface, Huawei's patent in China suggests ASML could lose its privileged status, but not so fast. There's a lot more to this story. 

A patent is nothing more than a legal document

According to a report from Taiwanese media outlet UDN, Huawei has filed a patent on extreme ultraviolet (EUV) lithography equipment in China. Currently, actual working EUV technology is ASML's realm to rule, though its predecessor technology, which involves deep ultraviolet (DUV), has some competition.

EUV is incredibly important: It enables the manufacture of chips with transistors (the tiny switches in a chip that handle the computing process in a computer) just a few nanometers in size. Chips designed at this microscopic level are what power our smartphones and high-performance computing like AI in data centers. Decades of research and a handful of key acquisitions have put ASML many years in the lead when it comes to EUV technology know-how.

As critical as EUV has become, it's mind-bogglingly complex equipment to develop -- let alone to manufacture and operate. Only a handful of companies actually make use of (or are planning to make use of) ASML's EUV setups, including the world's largest chip fabrication company, Taiwan Semiconductor Manufacturing (TSM 1.60%), South Korea's memory chipmakers Samsung and SK Hynix, Micron Technology (MU 2.20%) (which just delayed the use of EUV until 2025), and Intel (INTC 0.61%) (where production should begin in 2023). Huawei would seemingly jeopardize ASML's relationship with these key chipmaking partners.

However, filing a patent -- especially a patent solely for use in China -- is not the same thing as actually building a working piece of equipment. It took ASML many years to complete a working EUV prototype, and many more years after that to actually commercialize its most advanced machines. If the patent is granted, Huawei merely possesses a legal document. It will still need to build its EUV machine. Which, mind you, requires many thousands of critical and specialized parts, some of which are made in the U.S., where there are restrictions on exports of advanced chipmaking technology to China.

Suffice it to say, Huawei still has a steep hill to climb. 

Ultraviolet with envy

In addition to Huawei not being an imminent threat, there's also the matter of ASML's current China business. It hasn't been able to sell EUV machines to mainland China for the last few years, and there's no indication that will change anytime soon since the U.S. and the Netherlands (ASML's home base, which is acting largely at the behest of the U.S.) have imposed new restrictions on exports to China in recent months. So even should Huawei succeed, ASML isn't selling EUV to Chinese customers in the first place. In other words, you can't lose something you don't have.  

And as for a long-term threat that Huawei could export EUV equipment from China and compete with ASML on the international scene, it would first need to convince companies like Taiwan Semi, Samsung, Intel, and the like to ditch a very deep and long-term relationship with ASML. With decades of experience under its belt, I doubt ASML would lose many orders. After all, an EUV lithography machine costs hundreds of millions of dollars apiece. That's far too expensive a piece of equipment to take a gamble on.

For any ASML shareholders who have considered panic-selling on this Huawei news, I'd caution against that. The company is under no imminent threat -- at least from this particular source. The long-term growth outlook for ASML remains intact as the semiconductor industry continues its multi-decade rise.