IBM to Spend $3B on Chip Research Over Five Years

International Business Machines Corp. (NYSE:IBM) on Wednesday pledged to spend $3 billion over five years on semiconductor research, a move to reassure customers that the technology underlying IBM's hardware and software businesses will keep advancing.

The computer giant said the money will be directed toward two major tasks--tackling technical obstacles to the miniaturization of circuitry on conventional silicon chips and developing alternative materials and technologies to keeping boosting computing speed while consuming less energy.

IBM last year spent $6.2 billion on research and development. Its latest plans essentially maintain its current spending levels on chip research rather than increase them.

Still, the company said it is important to reinforce plans to keep up its spending in the wake of recent developments, particularly the pending sale to Lenovo Group Ltd. of a server business that uses chips from Intel Corp. The deal will leave IBM even more reliant on its other server and mainframe computer lines, which use internally designed chips.

"We don't want anybody to be confused," said Steven Mills, a senior vice president in charge of IBM's software and systems businesses. "We need to reinforce our long-term commitment to the hardware platforms that we have."

Another issue is the fate of IBM's chip-manufacturing operations, which now produce products for its own systems and for other customers. People familiar with the situation this spring said Globalfoundries Inc. had been in talks to buy the IBM factory in East Fishkill, N.Y., but no deal has been announced. IBM and Globalfoundries spokesmen have declined to comment on that possibility.

Many other computer makers have shed chip-related investments to save money. Developing new semiconductor technology is extremely expensive, while operating chip factories--which now cost $5 billion or more to build--is even more costly.

Roger Kay, an analyst at Endpoint Technologies Associates, said IBM is likely to keep designing chips for its systems while turning to services such as Globalfoundries to manufacture them. Its underlying message is "we are still in that business but don't want to pay for it all," he said.

IBM's research agenda underscores the increasing difficulty of wringing more benefits from chips by shrinking the size of transistors and other components. The pace of innovation, with the number of transistors on a chip typically doubling approximately every two years, is often described as Moore's Law, after Intel co-founder Gordon Moore.

Intel, the world's largest chip maker by revenue, was forced recently to announce a rare delay in completing its latest production recipe. That technology shrinks the size of features on its microprocessors to 14 nanometers--billionths of a meter--from 22 nanometers on many current Intel products.

Intel and others have expressed confidence in plans for at least two future generations of chip production processes, which are expected to reduce circuit dimensions to seven nanometers. But the costs of that technology could be prohibitive, at least without productivity gains in what the industry calls extreme ultraviolet lithography, or EUV. The new technology departs from conventional optical techniques to define microscopic circuit patterns on chips.

IBM, one of many companies that has helped encourage EUV development, said part of its research efforts will seek to help overcome obstacles to shrinking circuitry on silicon chips to seven nanometers and possibly beyond.

At the same time, IBM described a series of more esoteric projects that include replacing silicon with graphene--a thin film of pure carbon--or structures called carbon nanotubes. Other research areas include "neurosynaptic" computing--a departure from conventional computer designs that is expected to work more like a human brain--and "quantum" computing, a long-discussed research field that exploits the behavior of subatomic particles.

Rick Doherty, an analyst at Envisioneering Group, said it makes sense for IBM to spread the risks associated with updating its computers beyond just silicon-based technology. Like a cautious roulette player, IBM is saying "we are going to bet on red and black now, not just red," he said.

IBM said most of the research will be conducted at facilities in Albany and Yorktown, New York, near San Jose, Calif., and in Zurich, Switzerland.