IBM Just Changed The Game

Summary

  • IBM announced that it has successfully created a 7 nm-based processor.
  • This will yield huge benefits for the company in the form of licensing agreements and chip production.
  • Intel and other chip companies should fear this new technology and ramp up R&D quickly.

Introduction

International Business Machines (NYSE:IBM) announced Thursday that it has created the most powerful computer chip in existence. Researchers at the company have created a microprocessor that uses 7 nm transistors, which is smaller than the 10 nm transistors that will soon be the industry standard of cutting edge. As The Verge put it, 7 nm is “the generation after the next generation.”

IBM Chart

IBM data by YCharts

Some thought that Moore’s Law, which states that the number of transistors per square inch of processor doubles every two years, might have hit a wall because of just how small the scale was becoming. Then IBM researchers had a breakthrough when they used silicon-germanium for parts of the transistors instead of pure silicon, yielding the most powerful chip the world has ever seen.

IBM’s Patent Prowess

IBM has made a strategic shift away from hardware, but this latest advancement shows that, even at decreased capacity, the company has the top research and development department worldwide. IBM has always been ahead of the competition in creating new technologies, which is evident by the fact that 2014 marked the 22nd straight year in which IBM earned the most patents of any corporation.

In 2014, the company received 7,534 patents, becoming the first company to ever earn more than 7,000 patents in a year. The runner-up in 2014 was Samsung (OTC:SSNLF), which earned 4,952. It is apparent that IBM is the global leader in researching and developing new technologies, and the 7 nm-based processor is just another example of this. However, while IBM has always been ahead of the pack in terms of inventing and building the newest technologies, it has been less successful at implementing them commercially.

Where’s the Benefit?

Last year, IBM paid GlobalFoundries $1.5 billion to take its chip manufacturing plants off its hand as part of its shift away from hardware. It is important to note that there are many incentives for companies to go fabless, so this sale does not restrict the potential commercial value of 7 nm technology. IBM will license out its technology to manufacturers such as GlobalFoundries which will then utilize it for its other clients such as Advanced Micro Devices (NASDAQ:AMD) and Qualcomm (NASDAQ:QCOM).

IBM’s 7 nm transistors

(Source: Here)

Make no mistake though, 7 nm-based processors are still a long way away from commercialization so the value to IBM will not be realized until years down the road. However, Intel (NASDAQ:INTC) which has long been IBM’s competitor, might be in trouble because it has not yet provided any sort of roadmap to indicate when it will reach the 7 nm process. If Intel does not develop 7 nm-based chips quickly enough, not only will IBM’s technology be more competitive in the market, but GlobalFoundries’ other clients AMD and Qualcomm also will have better technology with which to develop chips.

Intel has never been the sort of company to take competitive threats lying down so I do not think it will get to a point where Intel’s products are languishing in obsolescence, but this is definitely an incentive for Intel to ramp up R&D to catch IBM.

And if you are still skeptical about exactly how powerful IBM’s new technology is, the company estimates that processors created with 7 nm transistors with deliver a 50% area scaling improvement over 10 nm-based chips, and at least a 50% performance improvement. In an industry where every last bit of usefulness is squeezed out of every product and architecture, this is a momentous achievement and once again asserts IBM as the global leader in technology development.

There’s no doubt that this technology is a scientific breakthrough, but applying it commercially and in a manufacturing setting is a completely different story. The main concern is in regard to the Extreme Ultraviolet (EUV) light lithography used in the production process of 7 nm transistors. Even the slightest vibration can disrupt the extremely precise production process so there are doubts over whether the EUV machines necessary for the high-speed manufacturing of chips with these transistors can effectively operate in a factory setting. Despite these potential obstacles, IBM is confident that new generations of EUV photolithographic will be able to function in a commercial setting.

My personal take on this issue is that people also were doubting whether a 7 nm-based chip would be created, but technology and scientific advancement never ceases to prove our future predictions wrong. I’m reminded of an infamous quote by Charles H. Duell who was commissioner of the US patent office in 1899 who said: “everything that can be invented has been invented.” That quote is an example, though an exaggerated one, of just how unstoppable human innovation and exponential technological growth is. I looked it up and the number of patents issued in the US in 1899 was 70,075 and the number issued in 2014 was 1,107,650. And remember that is in the US alone. My point with all this is that technological barriers rarely hold for long and manufacturing for 7 nm chips will most definitely find a way.

Conclusion

IBM has made a major breakthrough with 7 nm-based processors, which will be a boon for the company going forward. Assuming its researchers figure out a way to commercialize its 7 nm technology, and I believe they will, IBM stands to make a handsome profit from licensing deals and product development as they have a large first-mover advantage against other chip companies, mainly Intel.

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