Year in Review: Chips

In chips, a new balance of power

If the previous two years didn't provide enough evidence, 2006 clearly proved that the processor industry has moved into a whole new era.

No longer does Intel dominate the processor market to the extent that it once did. Granted, the world's largest chipmaker is still that: the world's largest supplier of silicon to the computer industry. And as of the third quarter, it still shipped three quarters of all the x86 PC and server processors sent out into the world.

But Intel was forced to come to grips this year with the fact that Advanced Micro Devices' market share run over the past few years has staying power. Thousands of layoffs punctuated a cost-cutting effort that has Intel slimming down at a time when it can't count on market share--especially in the lucrative server segment--as it once did.

Revenue and profits took a tumble at Intel this year as the company paid the price for taking its eye off the ball several years ago. An industry shift toward more energy-efficient multicore processors caught Intel off guard, and allowed AMD to make a name for itself in the server market, once reserved exclusively for Intel.

And the one customer that stuck by Intel through thick and thin finally started to play the field. Dell's decision to adopt AMD's Opteron chip was a seismic moment in the industry, after Dell's years of fealty to Intel and never-ending rumors. It represented a huge win for the smaller chipmaker, which later scored deals for Dell desktops and notebooks with AMD chips.

However, Intel has good reason to feel better as the year draws to a close. It launched a new generation of processors that appears to have tipped the performance advantage back in its favor, starting with the Core Duo launch in January. The Core 2 Duo and Xeon 5100 were very well received by chip reviewers and customers, helping Intel regain server market share and the good graces of the gaming community.

It also beat AMD to the quad-core era with the Core 2 Extreme QX6700 and Xeon 5300 processors. Intel moved up the launch of those processors to put some distance between itself and AMD, which isn't expected to have quad-core processors ready until the middle of next year.

As for AMD, it decided to shore up its one clear weakness against Intel: its notebook processors. The Turion processor went dual-core in May, and helped AMD pick up some design wins toward the end of the year. AMD also revealed plans for next year to develop a chip design specifically for notebooks rather than continuing to essentially tweak a server processor to fit in a notebook PC.

But AMD's biggest move in 2006 came when it acquired graphics chipmaker ATI Technologies for $5.4 billion in cash and stock. The deal gives AMD the ability to make its own chipsets for its own processors, a strategy that helps PC companies get their products out on the market more quickly and an area in which Intel has been operating for some time. The long-term ramifications are potentially more interesting, however, with the two companies pledging to release chips in 2008 that have a PC processor and graphics processor integrated onto one piece of silicon.

--Tom Krazit

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