ATI's market share in overall desktop graphics chips has grown to 27 percent, a lead that mushrooms to 35 percent in 3D graphics shipments, according to the report. ATI is also quickly gaining strength in the 3D graphics chip market for notebook PCs, with a 31 percent share here, according to the report.
"This is a milestone in the changing of the guard," said Mike Feibus, principal analyst with Mercury.
According to Mercury's report, the top five graphics accelerator makers in the total market, desktop and portable, in the second quarter of 1998 are: ATI, S3, Cirrus Logic, Silicon Integrated Systems (SiS), and Trident Microsystems.
In the second quarter of 1997, rankings were reversed for the top two with S3 holding the No.1 slot and ATI in the No.2 position.
Another interesting trend is SiS's rise. The success of the chipset vendor is part of the integration trend, said Mercury analyst Dean McCarron. SiS has integrated graphics functions into a chipset that serves the bottom of the PC market. To date, chipsets--which work in tandem with main processor and control how it talks to other components in the system--have not included graphics capabilities.
"We see more of that happening," McCarron said. Intel, now the leading chipset vendor, is also slated to bring out a chipset that integrates graphics features.
There's also been in shift in market concentration over the past year. In the second quarter of 1997, the top five companies controlled 76 percent of total units shipped, McCarron said. In the second quarter of 1998, the top five controlled only 66 percent of total units shipped.
Smaller players, such as Nvidia and Intel, have a greater presence now because of what's happening with 3D, McCarron said.
After the main microprocessor, graphics chips are the most critical piece of silicon in personal computers today. These chips handle the manipulation of images users see on their computer screens and are increasingly important as computer interfaces and 3D games become more sophisticated and demanding.
A number of factors have pushed ATI to the top, according to analysts. S3, the previous graphics chip leader, missed out on an important new round of products last year and ATI is enjoying the fruits of that mistake. Moreover, Intel's much-hyped Intel740 3D chip was late to the game.
But most importantly, ATI has a great graphics chip in the 3D RagePro Turbo.
"ATI is doing better currently because their chips are better," said Peter Glaskowsky, analyst with MicroDesign Resources. ATI is getting big volume from Compaq and all the other top computer vendors, including Apple Computer, Glaskowsky said. Apple, for example, uses an ATI chip in its iMac consumer computer that is now selling briskly.
PC vendors, inspired mostly by the gaming market, are using the 3D RagePro in droves, to the point where it's hard to find a consumer PC without it, said Mike Feibus of Mercury.
"S3 missed all of last year. They did not have a good 3D chip in all of 1997," Glaskowsky said. S3 still had pretty good volume by selling cheaply and selling to businesses, he said, and he called S3's forthcoming chip, the Savage 3D, a good chip.
Recently, S3 is making somewhat of a comeback with its 3D Virge chip, used by Compaq in its top-of-the-line notebooks, and is expected to deliver faster Savage chips later this year.