At the new plant to be built at its East Fishkill, N Y facilities-which IBM expects to be the world's most advanced chip-making plant - Big Blue plans to be the first to mass-produce semiconductors at microscopic line-widths below 0.10 micron. The new size is 1,000 times thinner than a human hair and far thinner than the 0.18 micron technology now used.

"The world of e-business is driving a massive build-out of the infrastructure of computing and communications," chairman and chief executive Mr Lou Gerstner said in a statement. "That, in turn, drives demand for critical technical components like chips."

The Fishkill plant will be the largest private-sector investment ever in New York state, Gov. Mr George Pataki said at a press conference with Mr Gerstner.

The move to 0.10 micron technology would allow IBM to pack more transistors into smaller spaces, boosting chip performance and speed while cutting production costs.

Mr Gerstner said that the chips would be the basic building blocks for markets that continue to have explosive growth due to business use of the Internet.

"Demand is white-hot in three critical segments-chips for big servers, chips to power the explosion in Internet access devices, and chips in the networking equipment that ties everything together," Mr Gerstner said.

IBM announced the expansion on a day when semiconductor stocks continued a downward slide. The Philadelphia semiconductor index was off more than 10 percent on Tuesday.

But Mr Gerstner, who has championed turning IBM's massive research and development efforts into profits, said that he sees ever-increasing demand for the cutting-edge chips to be made by IBM.

"We believe that the products that will be built in this plant and in fact the semiconductor products built in all of our plants will be at the very high end," he said at the news conference. "They are not commodity products, and not a lot of companies are going to be able to make them."

"We are chasing supply today to deal with all the demand in networking, wireless and electronics," he added. "We see this demand only increasing."

The new facility will combine IBM chip-making breakthroughs such as copper interconnects, which speed transistor connections, with other breakthroughs IBM has made to boost performance and lower power requirements of chip designs.

The plant is set to open in the second half of 2002 and create up to 1,000 new jobs in the area North of New York City by early 2003.

IBM shares closed off $3-1/8 at $114-13/16 on the New York Stock Exchange, as technology stocks stumbled - partly on investment rating cuts to semiconductor companies Altera Corp and Xilinx Inc.

Analysts at Salomon Smith Barney and Lehman Bros were concerned about the outlook for general-purpose semiconductors.

But Salomon Smith Barney analyst Mr John Jones said that BigBlue's technology leadership did in fact put it in a better position than other chipmakers.

"IBM is disappointing many of its customers now because they can't fill demand," he said.

Mrn Jones said that IBM's sales of microelectronics to other technology companies have grown under Mr Gerstner to 4 per cent of total sales today from 2 per cent of total revenue in 1996. "We think this business could see growth rates in the high teens to the low 20s," he said, comparing that to IBM's overall growth rates, which are projected at about 9 per cent. The plant will produce 300 millimetre - ordinary-plate-sized - silicon wafers, on which chips are built. The 300-millimetre wafers are larger than the current salad-plate-sized wafers, allowing the production of more chips from a single silicon wafer, cutting costs.

The Wall Street Journal