AMD Bulks Up

The chipmaker increases capacity to keep the heat on rival Intel.
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Calling it the fastest production ramp in company history,

Advanced Micro Devices

(AMD) - Get Report

announced Tuesday that it has begun shipping microprocessors from its new facility in Germany.

The new manufacturing site in Dresden, dubbed Fab 36, not only increases AMD's overall production capacity, but keeps the company on track in the technological race to produce chips using ever finer circuitry.

Still, AMD remains behind

Intel

(INTC) - Get Report

, the world's No. 1 chipmaker, in rolling out the most advanced generation of microprocessors. Intel began shipping microprocessors with 65-nanometer circuitry at the end of 2005, something AMD says it will begin doing at Fab 36 later this year. Smaller circuitry allows a manufacturer to squeeze more transistors onto a single chip, increasing performance and functionality.

Fab 36, AMD's second chip manufacturing facility, is currently producing Athlon 64 and Sempron microprocessors that feature 90-nanometer circuitry. The new facility uses 300-mm wafers however, instead of the smaller 200-mm wafers in use at AMD's other factory.

Since AMD can produce more chips on a 300-mm wafer than on a 200-mm wafer, AMD can reduce its manufacturing costs while increasing capacity.

"The increased capacity provided by Fab 36 will contribute to our goal of doubling total production output from 2005 through 2008," said AMD President Dirk Meyer in a statement.

AMD began construction of the facility in November 2003, and, according to company officials, was able to achieve mature yields of its latest microprocessors from the get-go. AMD has also contracted with third-party chip manufacturer

Chartered Semiconductor

(CHRT)

for extra capacity, and has boosted production at Fab 30, AMD's original manufacturing facility, from 20,000 wafers a month to 30,000 wafers a month.

While Intel dominates the market for PC microprocessors, AMD has recently stolen some market share thanks to the popularity of its chips, which some analysts consider technologically superior and more power efficient.

Intel is hoping that the new chip-microarchitecture it

recently unveiled and its lead in producing chips with smaller circuitry will allow it to halt AMD's advance. Intel recently announced a successful test of chips featuring even smaller 45-nanometer circuitry, and expects to ship 45-nanometer microprocessors in the second half of 2007.

"We're confident that the investments we've made in R&D and in capital investments continue to deliver benefits for us and for our customers," said Intel spokesperson Chuck Mulloy. Intel plans to spend $6.9 billion in capital expenditures in 2006, a 19% increase from the year before.

In Tuesday's press conference announcing the ramp of Fab 36, Hans Deppe, the general manager of AMD's German subsidiary mentioned that AMD has also successfully produced 45-nanometer test chips earlier this year.

According to Insight 64 analyst Nathan Brookwood, this development could trim Intel's lead over AMD in moving to 45-nanometer chips to as little as four months.

Brookwood also pointed to AMD's reference during the briefing that it is using immersion lithography to produce the 45-nanometer chips. Moving to immersion lithography tools can increase productivity at a manufacturing facility, allowing a company to pump out more chips in the same amount of time. But the tools are incredibly expensive -- so expensive, says Brookwood, that Intel has so far not shown much willingness to invest in immersion lithography technology for its numerous chip manufacturing facilities.

Intel's Mulloy said the company has not yet disclosed what underlying technology it will use to produce 45-nanometer chips.

Shares of AMD were up 1.4%, or 46 cents, to $33.64 in recent trading. Intel shares were off 3 cents to $19.32.