AMD, Intel Brace for Third-Quarter Showdown

The second quarter was tough on chip makers Intel and Advanced Micro Devices. Although AMD gained share, that doesn't mean better times are ahead.

Chip makers Advanced Micro Devices and Intel intensified their battle in the second quarter.

The tumultuous period saw the rivals pare back chip prices—while Intel also battled its own inventory problems—amidst declines in processor shipments, due to somewhat weaker than normal seasonal trends, new data from Mercury Research shows.

AMD emerged with a small gain. The chip maker saw its market share grow by half a point to 21.6 percent, up from 21.1 percent in the first quarter of 2006.

Intel, comparatively, felt the weight of its excess inventory, and arrived at a share of 72.9 percent, down from 74.3 percent in the first quarter of 2006.

But the third quarter, which has already seen a raft of new processor introductions, will be far more telling for the chip makers, analysts said.

"Q2 was a weak, seasonally," said Dean McCarron, principal analyst at Mercury Research. "Intel was dealing with its inventory issues. So it shouldnt be that much of a surprise that AMD gained a little bit of share, given Intels financial results and the background behind them."

AMDs gains came in servers—AMD, quoting Mercurys numbers, said its Opteron jumped to 25.9 percent of the x86 server market—and desktop PCs. Desktops were noted by both chip makers as a particularly tough market during the second quarter. Intel held the line in notebook processors, however, McCarron said.

Pricing, which embodied the tighter competition between the chip makers, set the tone for their quarters. Lower prices caused AMD to miss its second quarter revenue target.

Intel also saw lower than expected pricing along with its reduced second-quarter earnings, it said.

Intel and AMD have since added new products, upping the performance ante in an effort to top each other and woo buyers with the right mix of price and performance.

Intel rolled out its Xeon 5100 server chip for dual-processor machines and begun the introduction of its Core 2 Duo chip for desktops and notebooks.

Intel, which called the Core 2 Duo its most important chip introduction since the Pentium, is looking to the chip to help it regain market share.

/zimages/2/28571.gifTo read more about Intels Core 2 Duo chips, click here.

Intels second-quarter market share was roughly 9 points below that of its second quarter 2005 share of 82.2 percent. AMD, on the other hand, gained more than 5 points, year over year, from 16.2 percent in the second quarter of 2005, Mercury Research numbers show.

AMD has been looking to a version of its chips, including the Athlon 64 X2 and Opteron, dubbed "ref F." Ref F chips offer new features such as virtualization and support DDR2 (double data rate 2 DRAM).

Rev F Opterons have been shipping for several weeks, but have not been formally launched. An introduction is scheduled for August 15, people familiar with its plans said.

Both chip makers cut their prices during the week of July 23, lowering the list prices on their desktop processors by up to 61 percent each.

The cuts sparked talk of a price war. But theres reason to believe the new list prices simply reflected deals the chip makers were already offering PC makers during the second quarter as competition heated up.

"Theres ample evidence [the cuts] actually took place well before the announce date," McCarron said. "It was quite evident that the products were being sold for those prices youre seeing now back then."

Next Page: PC market slows down.