What do nanometers (nm) refer to when talking about microprocessors? Why is smaller better?

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I often hear about a new, smaller microprocessor that is, for example 5nm instead of 7nm.

In: Engineering

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A microprocessor (or any other chip) consists of millions of electronic elements (such as transistors) that are extremely tiny. These elements are created by a special and very expensive machine on a surface called a wafer. Multiple chips are created on a single wafer as the chips are tiny and the wafers are about as large as a small pizza.
The nm is a measure for the accuracy at which the circuits can be created by the machine. A nm is about 150 000 times smaller than the width of a hair. Developing machines that can manage this accuracy is extremely hard and it is also common to have some amount of produced chips on a wafer that are bad. The percentage of good chips on a wafer is called the yield.
But the benefit of smaller nm sizes is that the created circuits are smaller, allowing more chips on one wafer which reduces cost. Also, having smaller circuits means that they can be more power efficient when they run and this can allow a chip to run at faster speeds.
When manufacturers start producing with a lower nm technology, the yield is often low. But for microprocessors many “bad” chips can be salvaged by disabling some functions or memory and selling them as lower specced processors.

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