The stakes are immense for both companies. The move to a new process generation promises significant advantages in terms of increased processor performance, lower manufacturing costs, and the ability to integrate a greater range of functions on chip.

Although handicappers say Intel and AMD are neck-and-neck in the sprint toward 0.13-micron production, Intel is first out of the box with its Tualatin MPU. Intel executives say the Pentium III chip is a "proving vehicle" that is allowing the company to perfect the new process using a mature processor core. The Santa Clara, Calif., company then plans in the fourth quarter to shift the Pentium 4 over to more advanced production lines when it launches a new version of the chip code-named Northwood.

Intel is counting heavily on its ability to move the Pentium 4 to a 0.13-micron design rule as fast as possible to cut high production costs, according to Bert McComas, an analyst at InQuest Market Research, Gilbert, Ariz. The current Willamette-class Pentium 4 chip is 217 sq. mm. The Northwood, with about 50% less die area, would allow Intel to sharply reduce production costs for a chip family that has already been subjected to several steep price cuts, McComas said.

That, in turn, will help Intel subsidize its processor pricing war against AMD, which is also planning a fourth-quarter migration to 0.13-micron processing. Where Intel is using an older device to test its new production line, AMD is moving the Athlon 4 directly to the finer process geometry, according to the Sunnyvale, Calif., company.

The Athlon, at 129 sq. mm, is already smaller than the Willamette processor. Following the 0.13-micron die shrink, the Athlon is expected to run about 80 sq. mm, still smaller than the Northwood's die area.

Intel's manufacturing plans received a series of jolts earlier this year when one of its equipment vendors, SVG Lithography, Wilton, Conn., twice missed delivery dates for the lithography equipment Intel is using in its transition to 0.13-micron processing. The first tools are now expected to arrive in October.

The new argon-fluoride lithography systems will be used for one or two critical manufacturing layers, according to Bob Bruck, Intel's director of equipment procurement. Bruck said Intel initially will rely on its existing krypton laser lithography systems to make the smaller devices, supplementing the production process through the use of hard-phase-shift photomasks.

Phase-shift masks are expensive, however, as much as $250,000 each for the most complex devices. Although the same phase-shift mask can be used for a long run of repeated pattern exposures, the initial cost is significant, noted Phil Ware, senior fellow of strategy at Canon Inc.'s lithography division.

Intel's situation is unlikely to be exploited by AMD, though, given that the company's 0.13-micron process also must use hard-phase-shift masks for some of its chip layers, according to C. Richard Deininger, AMD's director of strategic equipment technology. Deininger said AMD also expects first deliveries of its next-generation argon-fluoride lithography tools in the fourth quarter.

Though touted as a "vehicle" that will usher in the Pentium 4 Northwood, Intel's Tualatin MPU will find its own market niche in the notebook PC sector, according to Peter Glaskowsky, an analyst at MicroDesign Resources Inc. in Sunnyvale. Glaskowsky said Intel wants to avoid putting the low-cost, high-performance Pentium III chip in the desktop market where the Pentium 4 is playing, at least until the Northwood is launched in the fourth quarter.

Some industry sources said the Tualatin will find its way into the value-line desktop space now served by Intel's Celeron processor.