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Is Intel's gain AMD's pain?

Intel took a substantial amount of market share from rival Advanced Micro Devices during the third quarter, but analysts say AMD will likely bounce back.

Intel took a substantial amount of market share from rival Advanced Micro Devices during the third quarter, but analysts say AMD will likely bounce back as chip inventories return to normal.

Santa Clara, Calif.-based Intel accounted for 86.8 percent of the PC processors shipped worldwide in the third quarter, a 7.6 percent leap from its market share in the third quarter of 2001, and 4 percentage points more than its market share last quarter, according to figures from Mercury Research. That's the largest it's been in four years, according to Intel.

By contrast, AMD saw its market share in the third quarter drop to 11.6 percent. The company experienced a market share of 20 percent in the same quarter the year before and 15.6 percent in the second quarter of 2002.

AMD's slide came as PC companies and distributors postponed purchases in a move to burn off excess inventory of chips bought in the first half of the year, according to Dean McCarron, principal analyst at Mercury. The inventory bubble has since dissipated, so these companies will likely begin buying more chips from the Sunnyvale, Calif.-based manufacturer.

"There is no question that they burned off an immense amount of inventory," McCarron said.

Shipments of chipsets compatible with AMD processors actually rose slightly in the third quarter. In the end, the ratio of Intel-to-AMD computers sold to consumers and businesses likely stayed roughly the same as in the second quarter. Still, Intel gained 4 percentage points of market share in the second quarter, compared with the same period the year before.

The recent activity in chipset sales may also indicate that the PC market is regaining its forward momentum after two years of declines. PC and motherboard makers typically stock up on chipsets a few months in advance of expected sales of complete systems to consumers.

"All the indications are that October has been a good month," said McCarron, who quickly cautioned that these manufacturers could simply be stocking up on chipsets.

IDC and Gartner both reported that third-quarter shipments increased from the same period the year before, the first quarterly increase in more than a year.

Last year's third quarter, however, was weak. Gartner said that fourth-quarter shipments should grow by 7 percent to 11 percent from the third quarter. That's less than the normal third- to fourth-quarter increase, but it's an increase nonetheless. PC shipments peaked in 2000 with 133 million desktops, notebooks, and Intel-based servers shipped.

The inventory bloat, combined with a slow PC market, conspired to make the third quarter a bleak time for AMD. Revenue came to $500 million for the quarter, well below expectations.

Prices on AMD chips dropped so low that the most expensive Athlon chip on the spot market, the Athlon XP 2000+, regularly sold for less than the 1.7GHz Pentium 4, according to Converge, which tracks component pricing.

In September, AMD delayed the release of the desktop version of Hammer, a chip based on an entirely new design, from the beginning of 2003 to a March or April time frame.

Still, hopes remain high for the company. AMD CEO Hector Ruiz will deliver a keynote speech at the Comdex trade show next month, and sources close to the company say it may announce that some computer manufacturers have committed to adopting Hammer chips for servers or desktops.