Hillsboro (OR) - Intel is rapidly moving to convert its current 90 nm production process for processors to 65 nm. By the end of 2006, the company will have four 65 nm fabs up and running - including three new facilities costing more than $3 billion each. They will crank out faster chips, but the transition ultimately boils down to cost savings - substantial cost savings, according to Intel CFO Andy Bryant.

Intel this week invited a few dozen financial analysts and journalists at its largest semiconductor production campus in Hillsboro, Oregon, to provide one more confirmation that its switch from the current 90 nm processor generation to 65 nm models are well on track. In fact, the Pentium D 900, code-named Presler, and the mobile processor Yonah, rumored to be called "Core" when launched, already are in volume production and will be released early in 2006 in what Intel predicts to be one of the fastest production ramps in the firm’s history.

But the "Strategic Summit" also provided an unusual detailed insight in Intel’s manufacturing business. Even if we are used to hearing that new production processes bring better and speedier processors, such a technology transition - now happening every 24 months - is implemented almost exclusively because of mid- and long-term cost savings.

Chief financial officer Andy Bryant mentioned that a process transition today requires an investment of either $1 billion to retrofit an existing factory or more than $3 billion to build a new plant. Still, he expects Intel to benefit from the investment and save between $1.5 and $2 billion over the option to keep the 90 nm process implemented. Smaller structures allow the company to squeeze more processors onto one wafer, decrease material cost per unit and increase volume at the same time. "Back in 1968, the cost of one transistor was $5.50 ; today it is one billionth of a Dollar," he said.

According to Bryant, the cost savings will get even better, if transition cycles are being accelerated and easily can offset enormous research and development investments as well as the construction of new plants. Intel plans a to move to a new production process every 8 quarters, which means that 45 nm processors already are developed and will arrive in late 2007.

All 65 nm processors scheduled for 2006, including Yonah and Presler as well as Conroe, Woodcrest and Merom will be manufactured on 300 mm wafers in two plants in Oregon (D1C, D1D), in Arizona (12C) and Ireland (24E). According to Intel, the average 65 nm fab will manufacture between 30,000 and 35,000 wafers per month. It is believed that these wafers will be able to yield between 200 and 350 dual-core processors.

According to Bryant, the capital required to drive production processes forward will continue to increase in the future and limit the number of companies that can afford to make those investments. "When a new fab costs $5 billion, a company will need revenues of almost $10 billion per year, if we assume a gross margin of 40 percent. Today there is only Samsung and Intel with revenues above that mark," Bryant said. At today’s cost of about $3.5 billion per fab, Intel estimates the required annual revenues at about $7 billion to make its model work.