IBM says it has achieved a breakthrough in shrinking computer chips, creating a test version of the world's first semiconductor that shrinks down the circuitry by overcoming what's been "one of the grand challenges" of the industry.

The microchip industry has long been able to consistently create smaller and more powerful chips, but this has grown increasingly difficult because of physical and technological limits.

IBM's new chip is the first with transistors that are seven nanometres. To get to the width of a human hair, you'd need roughly 10,000 of them. Today's most powerful computer servers are powered by microprocessors that use 22-nanometre or 14-nanometre node chips, while 10-nm chips are in development.

It is thought the new seven-nanometre chips could increase the potential processing power of computing devices by a factor of four.

The microchips use a mix of silicon and the chemical element germanium instead of the usual silicon-only.

But they are a long way from market. It has yet to be shown that the complex process needed to make them could be scaled up to make them commercially viable.

IBM Corp. is working with development partners at the State University of New York's Polytechnic Institute in upstate New York.

The company last year announced a $3 billion US investment over five years to advance chip technology to meet the growing demand that cloud computing, big data, mobile products and other new technologies are placing on semiconductors.

The semiconductor industry has long behaved approximately according to what's known as Moore's Law — the observation by former Intel CEO Gordon Moore that the number of transistors that can be squeezed into the same area of an integrated circuit doubles roughly every two years.

But as transistors have gotten smaller, the concern has been that it would become increasingly difficult to shrink them further so as to keep up with Moore's Law.