Wednesday, February 14, 2007

Applied Materials on 45 nm

Intel, locked in a battle-to-the-death with AMD, recently announced it had won the 45 nm war. Within hours the same day IBM announced that Intel's accomplishments, even if real, were no big deal because IBM has the same capabilities. That is good for AMD, which is partnering with IBM.

45nm means that semiconductors are constructed on a grid with cells 45 nanometers wide. Right now the most advanced silicon actually being sold is 65 nm, which Intel started selling mid-2006 and AMD started selling in January 2007. Smaller sizes mean more gates and computing power in a given area. You can, of course, waste those extra gates with a bad design.

Applied Materials executives, in the February 13th analyst conference (see my summary), gave their perspective on the transition to 45nm. They make much of the equipment used in fabrication plants to make semiconductors. They sell that equipment to just about everyone, including AMD, Intel, and IBM. They should know a thing or two about it.

They claim to have the best process. Whatever process they have they will license to anyone who will pay for it. They have worked with both IBM and Intel on the issue.

What does this mean for investors? It probably means 45 nm won't be an issue. One company or another might get an edge, but that is unpredictable right now and won't be the main determining variable. Every time process size shrinks there is a lot of handwringing; some day further shrinking either will be prohibitively expensive or just won't work.

Winners will be those who use 45 nm most effectively and are most effective at marketing. Intel is the long-reigning champion, but looks punch drunk and ready to fall. Intel fired thousands of engineers last year while AMD was hiring.

Meanwhile consumers benefit from the intense price competition. Short term investors probably want to avoid Intel and AMD, despite historically low stock prices. Long term, any letting up in the price wars will mean big bounces for both the companies.

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