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In an industry first, Taiwan Semiconductor Manufacturing (NYS: TSM) is evaluating extreme ultraviolet equipment from three different manufacturers. That might sound like an esoteric bit of geeky trivia, and you're certainly welcome to brush up on some lighter tech news or general investing theory instead.

But this is actually a big, investable deal from several angles. Let me explain a couple of 'em.

In a big, sweeping sense, usable EUV lithography is an absolute requirement for upcoming generations of semiconductor technology. To put this march of progress into context, the original Intel (NAS: INTC) Pentium processor crammed about 3 million transistors into one chip, with electrical traces 0.8 micrometers wide.

Nearly twenty years later, Intel's high-end processors come with about 2.5 billion transistors and 32 nanometer trace widths. In other words, a modern CPU made with Pentium-era manufacturing technology would be over a foot tall and wide, fraught with overheating problems, and sucking power like a rack of stadium lights.

Making processors ever smaller, faster, and more efficient will always require finer manufacturing technologies. Here, TSMC is doing some heavy lifting for the whole industry by evaluating every available solution to the EUV challenge.

The finer resolution of EUV manufacturing will come into play with the 14-nanometer process, two generations ahead of today's state-of-the-art. EUV beam systems are available from KLA-Tencor (NAS: KLAC) , privately held Mapper Lithography, and ASML (NAS: ASML) . Although TSMC is testing all three alternatives, it will only choose one for full-scale production.

The winner will take that stamp of approval to Intel, to Texas Instruments (NYS: TXN) , Micron Technology (NAS: MU) , and every other large-scale chip manufacturer to land lots of easy sales. If you're interested in KLA-Tencor or ASML at all, you'd be smart to add both of them and TSMC to your watchlist. The outcome of this rare side-by-side test will move markets and stock prices.

Moreover, the success of these tests -- or lack thereof -- will help set the tone for long-term semiconductor growth. In order to keep on making better and faster chips, the manufacturing technology must keep pace. For that reason, anyone with a long-term interest in the chip sector should keep a close watch on this low-key drama.

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At the time this article was published

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