International Business Machines ( ) announced that it will utilize DNA molecules (DNA origami structures) for building next-generation microchips and tiny circuit boards for use in computers, cell phones and other electronic devices. Through this new technology, IBM plans to advance in the nanotechnology field for smaller, faster and more energy-efficient computer chips.

The demand for cheaper semiconductors in large volumes is on the rise. The company’s innovative DNA molecules will shrink microchip sizes, thereby reducing manufacturing costs and feeding this demand. It is expected that the technology will facilitate transition to the sub-22 nm lithography. This will help scale up the production of tiny computer chips possessing greater power, speed and energy efficiency.

The building of chips using this new technology improves IBM’s prospects in the long run, opening the door to a previously unexplored opportunity. We believe that although manufacturing complexities are always a consideration for new players and the cost of developing new technologies is extremely high, IBM -- through its technology leadership, superior cash generation and significant investment in R&D -- would be in a position to capitalize on the opportunity. IBM’s new foray into the semiconductor business could lead to substantial savings in the most expensive and challenging part of the chip-making process.

IBM's research combines the DNA double helix and nanotechnology to build frameworks for the theoretically smaller and less expensive microchips. The research was jointly done by IBM's scientists at Almaden Research Center and the California Institute of Technology.

While this could be a new revenue stream for IBM, the stiff competition would likley result in pressure on prices, thus hurting margins. Large companies such as NVIDIA ( ), Intel ( ) and STMicroelectronics ( ) have vast experience and expertise in smaller semiconductor designs.

The technology that IBM plans to use is time consuming and very costly. The new process is not expected to take off for another 10 years. It will also require huge cash outlays, thereby raising the cost of production However, given the strengthening demand and IBM’s history of execution, we remain positive on the company’s new initiative.