Chip Wars: Intel, AMD Both Gain On Competitors

Intel, headquartered in Santa Clara, Calif., remained the overwhelming leader in global microprocessor revenue for Q1 with 79.7 percent of the market, defined by El Segundo, Calif.-based iSuppli as comprising general-purpose Intel Architecture (IA) or x86 chips as well as those based on RISC and other non-IA architectures. Intel's first-quarter numbers represented a 1.2 percent sequential uptick over the chip giant's Q4 2007 revenue market share of 78.5 percent.

But Intel's numbers were also down in Q1 as compared to the same quarter a year ago, when the company cracked the 80 percent mark in terms of market share. The drop-off was slight, just seven-tenths of a point, but enough to bring Intel down from the 80.4 percent share it enjoyed in Q1 2007 to the psychologically less impressive upper 70s.

It would be tempting to say that Intel's year-over-year loss was Sunnyvale, Calif.-based AMD's gain. But the smaller x86 chip maker's 2.2 percent market share increase -- from 10.9 percent of global microprocessor revenue in Q1 2007 to 13.0 percent in Q1 2008 -- had twice as much to do with the shrinking share of other vendors besides the big two. Microprocessor makers not named Intel or AMD lost nearly a point-and-a-half in global market share year-on-year, dropping from 8.7 percent of revenues in 2007's first quarter to 7.3 percent in the first quarter of 2008.

While AMD appeared to be the largest long-term beneficiary of the further consolidation of the microprocessor market into an overwhelmingly x86-dominated affair, the financially beleaguered company may have cause for concern over its short-term numbers as identified by iSuppli. AMD lost just over a point in market share from last year's fourth quarter, when it collected 14.1 percent. And AMD's 1.1 percent sequential loss was just about matched by main rival Intel's 1.2 percent gain, with the remaining tenth of a point of revenue market share bleeding off all other microprocessor vendors taken as a whole.

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For AMD, a company that has posted six straight losing quarters, shareholders had better hope that some combination of overall microprocessor market growth, margins and the performance of the chip maker's other businesses is at least inching the company further towards the black as its Q2 earnings call approaches. On the first order of business, iSuppli had some positive news for AMD, reporting 12.1 percent growth in first-quarter global PC unit shipments over the first quarter of 2007, from 62.4 million units shipped to 69.9 million. Included in the rising tide of PC shipments was eye-opening 30 percent growth for notebook shipments year-over-year.

Meanwhile, iSuppli reports that both chip makers' Average Selling Prices (ASPs) remained flat from the fourth quarter of last year into the first quarter of this year. Of course, given faster microprocessor product cycles and the cutthroat nature of past price wars between Intel and AMD, flat prices would almost seem to count as price hikes -- iSuppli describes the ASP stability as a reflection of "the robust demand situation" for the two companies' microprocessors.

Is the first-quarter picture painted by iSuppli mostly carrying through to present market performances? Chip watchers will get some answers on July 15, when Intel reports its second-quarter earnings, and more on July 17, when AMD presents its report. And as usual, the smaller company seems to have more on the line than its goliath rival.

Last December, AMD CEO Hector Ruiz promised steady sequential gains on the ledger sheet in 2008 ahead of a predicted return to profitability by the end of the third quarter of this year. With most of the costs associated with the 2006 acquisition of graphics chip maker ATI in its rearview mirror, AMD opened this year on the right track as per Ruiz's pledge.

The company reported first-quarter earnings that, while still $358 million in the red, represented a considerable year-over-year improvement over the $611 million lost in Q1 2007. Not to mention the whopping $1.77 billion deficit AMD suffered in Q4, much of it due to an impairment charge on the ATI merger.

AMD took a $600 million hit in the second quarter of 2007. Can the chip maker cut that figure in half this time around? And would even that be enough to keep investors marching to the Ruiz tune?