Tech Breakthrough Begins Intel, IBM Chip Battle

The first shots in the war for the microprocessor of the future have been fired over the weekend.

The two leading chipmakers, Intel and IBM , came out with similar announcements this weekend that they have made major advancements in microchip technology. Jim Goldman had the story for “Morning Call” from San Jose, CA.

The advancement has to do with replacing silicon dioxide, the basic material for microchips and where Silicon Valley got its namesake, with an alloy called hafnium which uses less power but runs faster. Goldman says the innovation will carry the industry far further than engineers and analysts thought. It is probably the biggest breakthrough in the field in 40 years, Goldman says, and teams from both companies have a good shot at sharing the Nobel Prize for the advance.

Both Intel and IBM are looking to become the leading next-generation chipmaker, although they cater to slightly different markets. Intel is the leading chip provider for PCs (and now has a stake in Apple’s Mac computers) while IBM’s chips power gaming devices like Microsoft’s X-Box 360, Nintendo’s Wii, and Sony’s PlayStation 3.

While IBM has made the developments in part with Advanced Micro Devices --Intel’s biggest rival-- Intel is likely to gain ground against AMD, Goldman says. This is in part because with the breakthrough, Intel’s CEO Paul Otellini also announced three new domestic factories capable of using the new “45 nanometer” technology, which refers to the width of a chip transistor (Intel had been previously making 65 nanometer chips). The new plants will be capable of mass-producing the new processors. “It’s the most important thing we can do to show strength over time,” Otellini says about the plant openings. In addition, Goldman says it could be good news for Intel’s domestic business – the company does about 80% of its business overseas.

And surely the chip breakthrough, along with the plant openings, will be significant for Intel investors. IBM is sure to benefit as well – so now the next question is which company can turn this technological breakthrough into long-term value for their bottom line.