Looking to extend its lead in the booming cell-phone market,

Texas Instruments

(TXN) - Get Report

provided a glimpse of its next-generation chip manufacturing process.

The new process, which will affect chips slated to come to market in 2008, will boost performance by 30% while providing longer battery life, according to TI, the world's No. 1 maker of chips for cell phones.

At the start of a semiconductor industry conference in Hawaii Monday, TI said it has developed a manufacturing process using immersion lithography to produce chips with 45-nanometer circuits. The move to 45-nanometer-based manufacturing means TI can produce twice as many chips on each silicon wafer.

The bulk of TI's current chips feature 90-nanometer circuits, and the company is in the process of transitioning to 65-nanometer chips.

While the move to 45-nanometer chip production is a natural progression of TI's technology road map, the company's announcement puts the heat on competitors in an increasingly expensive race to produce chips with ever-tinier circuitry.

And an early lead producing 45-nanometer chips could prove particularly important in the growing market for low-cost cell phones in Third World countries.

"What it really demonstrates is their commitment to develop leading-edge technology for cost-reduction purposes," says Len Jelinek, a semiconductor manufacturing analyst at the industry research firm iSuppli.

By shrinking the size of a chip's integrated circuits, a company can pack more functionality on each chip. At 45 nanometers, TI says, it will be able to integrate digital radio frequency functionality in single-chip wireless products, as well as incorporating various analog components such as resistors and capacitors.

For cell-phone makers that sell handsets in developing economies such as India and China, single-chip solutions offer a way to keep costs down.

Texas Instruments is the first "to announce it, so one's got to believe that they're going to be one of the first people in production for the ultra-low-cost handset market," says iSuppli's Jelinek. "And clearly, when you're the first guy in the market, you command a price premium, as well as gaining the majority of the first sockets."

TI said its 45-nanometer manufacturing process will also affect the higher end of its product portfolio, resulting in cell-phone chips that have more muscle for applications such as video and gaming.

Shares of TI closed down 2.43%, or 72 cents, at $28.96 Monday.

Freescale Semicoductor

(FSL)

, which also makes chips for cell phones, said it is still premature to discuss its technology and process at the 45-nanometer generation. But a spokesperson stressed that the company is on track to qualify its 65-nanometer technology this year and that Freescale has a business model of transitioning to a new generation every two years.

Among the technologies that Freescale is considering for its 45-nanometer manufacturing plan is strained silicon-on-insulator substrates. The company announced Monday that transistors based on this technology can achieve 30% greater performance while reducing active power consumption by 40%.

For its part, TI said its 45-nanometer chips will reduce power consumption by 40% and give a cell phone up to 30% more standby time.

Semico analyst Dave Cavanaugh says TI's 45-nanometer technology appears to provide an impressive balance in the finished chip's trade-off between power consumption and performance.

According to Cavanaugh, TI can reduce power consumption not only by switching off unused portions of an integrated circuit but by manipulating voltage and frequency to throttle down power consumptions within certain parts of a chip.

"There are just a handful of companies that are announcing production at 45 nanometers with this kind of power-performance trade-off," says Cavanaugh.