As most have heard by now, Intel (NASDAQ:INTC) founder Gordon Moore famously predicted in the 1960s that the number of transistors on a chip would roughly double every two years.
That has held true, though lately there have been questions over whether the industry has hit the wall in terms of being able to squeeze more and more transistors onto ever smaller chips. Intel, though, has announced that, at least for the time being, "Moore's Law" is in no danger of being proven wrong. The company claims it has developed a fully functional 70-megabit memory chip with transistor switches measuring just 35 nanometers, about 30% smaller than state-of-the-art chips found on the market today.
Nanometers are billionths of a meter, and Intel has been able to shrink the size through the use of superior materials and technologies that avoid problems such as heat and power dissipation.
Along with competitors such as Advanced Micro Devices (NYSE:AMD) and IBM (NYSE:IBM), Intel uses "strained silicon," a material that has widely spaced apart atoms to allow more room for the electrons to move between them, improving the semiconductor's electrical properties. It can increase performance by up to 30% and improve inadvertent electricity leakage by up to four times current levels.
The semiconductor industry is in the midst of a transition to the 90-nanometer size, and Intel says the industry is on track to deliver products at 65 nanometers in 2005, with high-volume production beginning in 2006.
There are ways investors can profit from the shrinking chip sizes without directly investing in the cyclical chip industry itself.
Back in June, Tom Engle and I recommended FormFactor (NASDAQ:FORM) for Hidden Gems, the Motley Fool's small-cap investment newsletter. The company is the leading manufacturer of advanced test probe cards, devices used to ensure the chips work as intended. As chips continue to shrink in size, the industry, out of necessity, will be required to make use of this advanced test technology. Despite being down about 18% from where we recommended it (ouch!), FormFactor just about owns the market and is positioned to capitalize on these shrinking trends.
While Intel has been beset with some production problems, including having to recall its Grantsdale chip and delay its Pentium M chip, the company was able to report a sharp rise in profits as the demand for flash memory chips used in mobile phones has rocketed.
Even as the 35-nanometer chip underscores the prescient nature of Moore's Law, one does have to ask, just how small can they go? As the chips get smaller and smaller, it tests the physical limitations of silicon. Yet whether it's in the chip makers themselves, or in the picks and shovels of the industry, investors stand to make big profits from tiny chips.
Fool contributor Rich Duprey picked FormFactor as one of the June Hidden Gems recommendations. (How about a free trial?) He owns shares of FORM but not of any of the other stocks mentioned in this article.
