Aesop wasn't writing about nanotechnology when he penned "The Tortoise and the Hare" 2,500 years ago, but the fable might be relevant in the 21st century with the dawning of the nano age.

Every electronics investor knows of Moore's Law, which states that engineers will essentially double the number of transistors on a chip every two years or so. Following that principle, chip sizes have become smaller and smaller with your current PC likely using chips of 130nm (nanometers) size and your next one will likely be using chips of 90nm size. This reduction in size brings with it more power, and although clock speed is now an outdated mode of gauging performance, it is the reduction in chip sizes that brought clock speed up from 133 MHz only a few short years ago to the 2.4 GHz that we commonly see being used today. So the chip industry is the first industry to move en masse from the micro age to the nano age.

Now nanotechnology purists may claim that it is not nano as the chips are not self-assembled and are built from the top down. In essence, we have simply managed the ability to work at smaller and smaller levels, so the purists would be right. However, the industry is nevertheless below the commonly accepted definition of nano, (i.e., that of working at levels below 100nm).

The 45nm race
That is the here and now with Intel (NASDAQ:INTC) and Advanced Micro Devices (NYSE:AMD) as the two leading protagonists who continue to run ever faster and ever smaller in a seemingly endless race. So how small can we go and who will get there first?

At 130nm size, there are something like 42 million individual transistors in your hard drive, that little box somewhere under your monitor. There is talk of 1 billion transistors eventually fitting in there. (Think about that for a second and you will begin to appreciate how small nano is.) For as you go from 130nm to 90nm and beyond, the space created is exponentially larger. To get to 1 billion transistors, we need to go from 90nm to 65nm to 45nm and potentially even down as small as 2nm. As far as current knowledge goes, it will be impossible to go smaller than that without moving to the organic computer.

Both Intel and AMD are working on doing exactly that, both producing nice website graphics and lovely looking reports on the evolution of chip size, and commercially selling 90nm by this date and 65nm by that date and so on and so forth. So when Intel was first to the 90nm finish line with the launch of its Prescott chip, like the hare in the famous fable, the company took an early lead and was fully six months ahead of AMD. Six months in the life of chip development is a huge gap when we remind ourselves of Moore's Law.

Unfortunately, Prescott was plagued with power consumption and heat build-up issues. Meanwhile, AMD's tortoise plodded along and finally arrived six months later with a working 90nm chip with reportedly improved performance and no heat issues.

So where do we go from here?

Keep on moving
No company in the midst of such a race can stand pat, and neither of these two goliaths is. Both are now working on 65nm chips and beyond. Intel promises 65nm by 2005 and 45nm by 2007, AMD 65nm by 2006. Not surprisingly, they are taking different routes to get there.

Intel and AMD have built their businesses upon the basic architecture of the complementary metal oxide semiconductor (CMOS). But as the chips become smaller and smaller, the architecture of CMOS will be made redundant and will be replaced with innovative technologies such as the addition of carbon nanotubes and carbon nanowires. Apart from their own in-house research, they are both going to outside bodies to help them overcome the technical hurdles that working at the nano level provides.

Intel is a core partner with IMEC, a Belgian-based research operation with industry-wide support and financing. IMEC is Europe's leading independent research center in the field of microelectronics, nanotechnology, enabling design methods and technologies for ICT systems, and is well funded, with over $180 million revenues last year, 75% from industry partners and the rest from the Belgian government.

Other core partners of IMEC include Infineon (NYSE:IFX), Kon Philips (NYSE:PHG), Samsung Electronics, and STMicroelectronics (NYSE:STM), but notably not AMD. IMEC has also signed up 10 nano toolmakers, including Applied Materials (NASDAQ:AMAT), ASML (NASDAQ:ASML), FEI Co. (NASDAQ:FEIC), and KLA-Tencor (NASDAQ:KLAC), among others to perfect processes and instruments to see and manipulate the manufacture at 65nm and 45nm sizes.

Apart from this joint work, Intel has also partnered with a private nanotechnology company, Nanosys, holder of 70 patents related to carbon nanotubes and their processes. It will be companies such as Nanosys, which have the focus and specialized know-how in the nano realm, that we look for in our newly launched Rule Breakers service. Nanosys and companies like it step up to solve the unique technical problems that working at the nano level produce, and by so doing enable an industry to evolve and move forward.

AMD, on the other hand, continues its long-standing partnership with IBM's (NYSE:IBM) Fishkill-based research division. However, we should not overlook IBM as it is a major nano player on its own, with over 700 nanotechnology-related patents. Certainly in the case of 90nm chips, AMD's later offering appears to be better received and with better performance parameters than was Intel's Prescott at the time of its launch. One cannot say how much of that was due to IBM's involvement, but it is the company with the experience of handling technical issues at the sub-100nm level, not AMD.

It is perhaps due to the industry's awareness that the transition to an ever-smaller world is not going to be a seamless one that, according to a recent report, initial demand for 90nm chips has not been overwhelming. It is important for industry growth that technical problems are resolved prior to commercial launch, but it is even more important to Intel that AMD does not further cement its reputation as the ones who deliver the new technology first.

We are not saying Intel has fallen asleep like the hare did in the fable, but its recent technical performances in comparison to AMD did bring Intel's chairman to his knees in mock apology at a recent gathering in front of investors.

Perhaps it is not only in fables that tortoises can win races.

If you're looking for the next growth company in groundbreaking industries such as nanotech, try our ultimate growth service, Motley Fool Rule Breakers.

Do you have high hopes for the nanotechnology sector? Share your views with Carl (TMFBreakerCarl) and John (TMFBreakerJohn) in the Nanotechnology discussion board.

Neither Carl Wherrett nor John Yelovich owns shares in any companies mentioned. You can reach them both by email. The Fool has a disclosure policy.