Now, the chip wars get nasty; expect the survivors to go after the solar cell makers

Chip makers are packing more circuits onto their chips. The next generation will be dense with circuits just 28 billionths of a meter–28 nanometers–wide.

That will expand, yet again, the power and speed of semiconductors, and increase yet again the number of places where chips can be used. The smaller and more powerful chips will wind up adding smarts to yet more “dumb” devices and making already smart devices from cell phones to refrigerators to cars even smarter.

For the chip industry as a whole that means, once the current recession is over, more chip sales, more chip revenues, and more chip profits.

There’s just one tiny problem. Because the factories that make this generation of chips cost so much–a new 28-nanometer chip factory (called a foundry) now being built in upstate New York will cost $4.2 billion–almost no company can afford to build one.

Intel (INTC) figures that only chip companies with at least $9 billion in revenue will be able to afford the next generation of factories. That’s a very short list: Intel, of course, Samsung, Toshiba, Texas Instruments (TXN), and STMicroelectronics (STM).  Add in chip Taiwan Semiconductor Manufacturing (TSM), a contract foundary that makes chips for companies without factories. That’s the total: 6 companies in the world.

The drop to six, if Intel’s forecast is correct, just continues a decades long winnowing process that has reduced the number of serious players from 14 when circuits were 90 nanometers wide to nine at the current 45 nanometer levels. Only Intel and Samsung have firm plans to build 22 nanometer factories, the next step downward in size from 28 nanometers.

You can expect the remaining players in the semiconductor game of musical chairs to fight like a passel of six-year olds for each remaining seat. That battle will define winners and losers in the chip sector, of course, but it will also shake up sectors as diverse as solar energy and automobiles. Read more