Intel gains market share on AMD's back

Intel gained two percentage points of market share in the processor market in the second quarter and six percentage points compared with a year ago in the depressed PC market.

The Santa Clara, Calif.-based chipmaker commanded 82.8 percent of the worldwide market for processors, including sales of processors for Microsoft's Xbox, according to Mercury Research, a market research firm. That's up two percentage points from its first quarter market share--including Xbox--of 80.8 percent and up nearly six points up from the 77.1 percent share from the same period last year.

Rival Advanced Micro Devices lost 2.6 percent of market share from the last quarter to occupy 15.6 percent of the market. Last year, AMD held 21.8 percent of the market. Taiwan's Via Technologies and Transmeta both saw sales rise and accounted for the remainder.

Not including Xbox, Intel held a market share of 81.7 percent, and AMD had a market share of 16.5 percent.

Besides a shift to Intel, there was also a shift to more low-cost parts across the industry. Not only did Intel and AMD sell more budget processors, graphics chipmakers said they saw a shift toward their budget parts. Even monitor makers said customers seemed more intent on buying less expensive, and often older, equipment, said Dean McCarron, principal analyst at Mercury.

"There was a dramatic shift toward value in the second half," McCarron said. While some of the shift can be explained by the economy, part of it was caused by inventory clearances. As a result, the shift may not be a trend.

"It's probably a one-quarter anomaly," he said. "We're looking at a really soft market in the second half."

Intel's gains weren't completely unexpected. Historically, when the PC market shifts, AMD bears the brunt of the damage. Because it has a far larger manufacturing footprint, higher margins and a greater volume of sales into a wider variety of markets, Intel can weather price wars and depressions than its rival.

The pattern is often predictable: AMD makes a profit and gains a few points of market share, Intel drops prices and accelerates chip speeds, and AMD subsequently suffers through six months or more of losses.

Still, for both processor manufacturers, the second quarter was a downer. After achieving higher-than-expected sales in the first period, the market for consumer PCs dropped suddenly in April and May, which exacerbated a slight bloat of inventory left over from the first three months.

AMD's revenue for the second quarter, ended June 30, came to $600 million, and the company reported a net loss of $184.9 million, or 54 cents a share, its fourth quarterly loss in a row. Last year, AMD reported a net profit of $17.4 million, or 5 cents a share, on revenue of $985 million.

The company's PC processor sales dropped 35 percent, from $580 million to $380 million, from the same period a year ago and 44 percent from the first quarter, when PC processor revenue came to $684 million. In terms of units, PC processor shipments dropped from 8 million in the first quarter to around 6 million.

"We probably lost a couple of points in (market) share," said Hector Ruiz, AMD's chief executive officer, at the time. To break-even the company will have to boost revenue to get back to profitability, which should come at the $900 million mark in quarterly revenue, he said. "We don't have any sloppy businesses or old fabs we can shut down anymore. We've got to work on the top line to get to 900 million plus."

Meanwhile, Intel, which reported a net profit of $446 million on $6.3 billion in sales for the period, but said it would layoff about 5 percent of its staff to cut costs.

Transmeta, which specializes in energy-efficient processors for notebooks, said it would shed 200 employees, or 40 percent of its work force.