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IBM Takes a Big Leap in Nano Chip Technology Development

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International Business Machines Corporation (IBM – Analyst Report) recently announced that it has achieved a breakthrough in its research for ultradense computer chips. The company has come up with its first 7-nanometer chips with reportedly four times the capacity of most powerful chips currently available. The project was under development in collaboration with GlobalFoundries, Samsung and SUNY Polytechnic Institute’s Colleges of Nanoscale Science and Engineering.

We believe the nano chip innovation is a big leap for the company, as it will help IBM to strengthen its market position in the field of electronics and information technology applications and other areas.

Further, the current progress in nano technology will apparently support IBM’s otherwise dwindling hardware business and also back the transistor technology, underpinning Gordon E. Moore’s theory, which states that the number of transistors on dense integrated circuits tend to double every couple of years. Going by Moore’s law, the 10nm and 7nm chips seem to be a natural progression for technology companies. However, the reality remains far more complex.

IBM started research in nano technology way back in 1998. In 2014, the company committed $3 billion over a period of 5 years for the development of a project that involved building super compact processors. The first phase involved building of chips whose transistors would measure just 7 nanometers, which is around 7 billionth of a meter in length. This represents a departure from IBM’s current flagship processor, the Power8, built on a 22 nanometers process.

One of the primary goals of IBM’s latest development is to replace silicon transistors with carbon nanotubes. Reportedly, this is expected to revolutionize transistor technology as a whole as nanotubes consume much less power to change its state compared to traditional silicon transistors. As a result, there is less heat generation and leakage (a consistent problem with compact silicon transistors), which allows adding more nanotube transistors onto a chip. In financial terms, this means getting more utility at a lesser cost with the bonus of increased power.

According to Stanford researchers, the use of nano technology in chip making can be commercially viable in the next 5 to 10 years. Even IBM reportedly projects its nano chips to be ready by 2020. However, researchers differ in their opinions about the time span required for bringing nano chips into real usage, given the technical complexities involved in controlling the electron flow at 7 nanometers thickness. This remains a drawback owing to high costs incurred by companies which perform such research. It requires huge investment, which limits the number of companies willing to take up research work.

However, IBM is not the only company researching in the field of nano technology. Companies like Intel Corporation (INTC – Analyst Report), Taiwan Semiconductor Manufacturing and Russian joint venture Crocus Nano Electronics are also in the game. However, the current standard production for these companies is limited to 14 nanometers process and Intel is currently working on 10 nanometer chips, which leaves less competition for IBM in this field.

We believe IBM’s success in transistor technology currently depends on how fast it can bring 7 nanometer transistors into use, since it involves replacing the current standard of 14 and 22 nanometer transistors and skipping 10nm altogether. Will this be cost effective? Can it become the next standard in the semiconductor space? Time will tell.

Currently IBM has a Zacks Rank #3 (Hold). Better-ranked stocks in the technology space include  Expedia Inc. (EXPE – Analyst Report), sporting a Zacks Rank #1 (Strong Buy).

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