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SAN FRANCISCO (Reuters) -- Intel Corp. and IBM have announced one of the biggest advances in transistors in four decades, overcoming a frustrating obstacle by ensuring microchips can get even smaller and more powerful.

The breakthrough, achieved via separate research efforts and announced Friday, involves using an exotic new material to make transistors -- the tiny switches that are the building blocks of microchips.

The technology involves a layer of material that regulates the flow of electricity through transistors.

"At the transistor level, we haven't changed the basic materials since the 1960s. So it's a real big breakthrough," said Dan Hutcheson, head of VLSI Research, an industry consultancy.

"Moore's Law was coming to a grinding halt," he added, referring to the industry maxim laid down by Intel (Charts) co-founder Gordon Moore that the number of transistors on a chip doubles roughly every two years.

The result of Moore's Law has been smaller and faster chips and their spread into a wide array of consumer products that now account for the bulk of the industry's $250 billion in annual sales.

The latest breakthrough means Intel, IBM (Charts) and others can proceed with technology roadmaps that call for the next generation of chips to be made with circuitry as small as 45 nanometers, about 1/2000th the width of a human hair.

Intel said it will use the technology, based on a silvery metal called hafnium, in new processors coming out later this year that the company hopes will give it a leg up on chips from rival Advanced Micro Devices Inc.

"We do expect that those products will deliver higher performance levels than existing products," said Steve Smith, vice president of Intel's digital enterprise group operations. "What we're seeing is excellent double-digit performance gains on media applications."

International Business Machines Corp. expects its technique to debut next year in chips made by its partners, which include AMD and Japan's Toshiba Corp.

Researchers are optimistic the new technology can be used at least through two more technology generations out, when circuitry will be just 22 nanometers.

"We've been doing this for 40 years and we've got to the point where some of these layers you have to make smaller wouldn't scale anymore," said IBM Chief Technologist Bernie Meyerson.

"We are getting down to a stage of technology where people have wondered if you could really ever go there, and we have definitely shown a roadmap down to these unbelievably tiny dimensions," Meyerson said.

The problem with the previous technology is that the layer of silicon-based material is now just 5 atoms thick, meaning lots of electricity leaks out, resulting in wasted power and shorter battery life.

"It's like running two faucets when you only need one. You're actually wasting more water than you're actually using," said Jim McGregor, an analyst with technology market research firm In-Stat.

The benefits of the new technique can be tapped in a number of ways. Transistors can be made smaller, potentially doubling the total number in a given area, their speed can be increased by more than 20 percent, or power leakage can be cut by 80 percent or more.

"Consumers are going towards mobility and power-sensitive solutions. We need to not only make things smaller and more efficient but also use less power," McGregor said.

There are plenty of challenges in keeping Moore's Law on track. For instance, it is becoming harder to make beams of light narrow enough to etch circuitry on chips.

"But this takes out what has been considered the biggest number one roadblock," VLSI's Hutcheson said.

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The problem with the previous technology is that the layer of silicon-based material is now just 5 atoms thick, meaning lots of electricity leaks out, resulting in wasted power and shorter battery life.

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