IBM will invest $1.5 billion to boost its semiconductor manufacturing and research efforts. The money will be split between three projects: the updating of the company's manufacturing plant in East Fishkill, New York; the expansion of IBM's operations at the University of Albany's College of Nanoscale Science and Engineering, and the creation of a new centre for research into chip packaging.

IBM researchers are trying to accelerate the miniaturization of chip circuitry by researching at the atomic level for 32nm and 22nm semiconductors. Making chip circuits smaller allows computers to deliver performance gains without burning up more electrical power.

"These new investments will spur continuing advancements in nanotechnology and semiconductor research and development - including new efforts in semiconductor packaging," said John Kelly, IBM senior vice president and director of research.

Chip makers such as Intel and AMD are also constantly upgrading their manufacturing technologies to shrink chips. Intel switched its manufacturing process to 45nm chips last year, and AMD is scheduled to make a similar move later this year. Intel hopes to shrink the features on its chips to 22nm by 2011.

A nanometre is equal to about one billionth of a metre. In chip manufacturing, the figure refers to the smallest features etched onto the surface of chips. As chip makers build smaller and smaller transistors, they are dealing with features that are in some cases just a few atoms thick.

As part of its research efforts IBM is developing silicon nanophotonics, which could replace some wires on a chip with pulses of light on tiny optical fibres, for transferring data between the cores on a chip at lightening speed and using little power. It is also working with universities to develop carbon nanotubes, tinier transistors that could deliver better performance.