IBM announced today that the company has begun producing a new, 65-nanometer version of the Cell Broadband Engine at IBM's state-of-the-art East Fishkill, New York microchip production facility.

Cell processors found in current Sony PlayStation 3 consoles and IBM BladeCenter servers are manufactured on a 90-nanometer process. Shrinking a chip’s die allows more processors to be produced per wafer, a key factor in driving down production costs.

Sony is desperately trying to reduce the costs of its PlayStation 3, as each console is still being sold below cost of manufacture. iSuppli estimates that each Cell chip costs Sony $89, more than a tenth of the entire bill of materials for the PlayStation 3. The shift to 65-nanometer would significantly reduce the cost of the Cell processor.

Aside from costs, other advantages of moving to a smaller process include lower power consumption needs, less heat production—both of which potentially leading to more reliable systems.

Moving to 65-nanometer is just another method for Sony to cost reduce its console. Last month, Sony announced that its European PlayStation 3 consoles will ship without the Emotion Engine chip, a component used for backwards compatibility with PlayStation 2 games, in an effort to save $27 in material costs.