Intel plans to spend from $1 billion to $1.5 billion to overhaul its semiconductor-production facility in New Mexico to manufacture computer chips with next-generation technology.

The Rio Rancho factory is expected to begin producing 45-nanometer chips - meaning they will have features as tiny as 45-billionths of a meter - in the second half of 2008, Intel said Monday. The transistors on such chips are so small that more than 30 million can fit onto the head of a pin.

Shrinking the circuitry of microprocessors, which act as the core calculating engines of computers, is essential to keeping up rapid gains in performance and energy efficiency.

Smaller chips let companies cram more transistors onto each slice of silicon and maintain the pace of Moore's Law, the 1965 prediction by Intel co-founder Gordon Moore that the number of transistors on a chip should double about every two years.

Santa Clara-based Intel expects the Rio Rancho investment to boost its lead over rival Advanced Micro Devices, based in Sunnyvale. Both companies are making a transition from the 65-nanometer technology used for their most advanced chips.

Intel said it remains on track to begin production based on 45-nanometer technology in the second half of this year, while AMD has said it plans to introduce its own 45-nanometer products in mid-2008.

In addition to its plans for Rio Rancho, Intel is spending $3 billion on a factory in Arizona and $3.5 billion on a facility in Israel, both of which will handle the new technology.

Intel said last month that chips based on 45-nanometer technology will use new materials that promise to reduce energy loss and solve a major problem vexing the semiconductor industry. The materials replace vital but problematic substances that had begun leaking too much electric current.

Intel's shares rose 9 cents to close at $20.85.

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