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The Fab Reality

New generations of far more powerful microprocessors are not a done deal. Even if the chips come off assembly lines with all the hoped-for performance, the industry might have trouble keeping their costs low enough that the cell phones and televisions they go into will still seem like bargains. The culprit is the mushrooming cost of constructing a leading-edge chip factory, which is already about $3 billion-out of reach for all but perhaps a dozen companies worldwide.

Of course, the makers of the best-selling electronic products will be able to spread those up-front costs over tens of millions of chips, keeping prices down for at least some products. But rising fab costs could lead to yet another problem for consumers: finding products in stock. Capital investment in the semiconductor industry has fallen by about half in the down economy of the past few years, and observers have issued predictions that the industry will face a shortage of chip-making capacity just as consumer demand for new-wave devices skyrockets.

“Everyone assumes the industry is capable of coming up with whatever capacity is required,” says Richard Gordon, vice president of research for the semiconductor group at market research firm Gartner. “But bringing on more capacity is difficult, and with production concentrated in a handful of companies, there’s going to be a problem.”

But there’s good reason to bet the industry will dodge these and any other bullets that come its way. After all, the chip world’s ability to prove Moore right year after year without making the daunting leap away from silicon has defied even optimistic expectations. “No matter what the constraints, this industry always pulls off miracles,” says Steve Jurvetson, managing director of venture capital firm Draper Fisher Jurvetson.

Just tell your cell phone to keep you posted on the latest developments.

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