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Saturday, April 29, 2006

Look Who's Gaining Market Share

April 26, 206

In its post-earnings release conference call last week, Intel noted that it had held the line with regard to market segment share losses to AMD. Then, yesterday AMD issued a release noting that its share of the market for processors used in x86 servers reached 22.1 percent in Q1, up from 16.4 percent in the prior quarter. What's a market analyst to do? It's little wonder our forecasts are of dubious quality, when we cannot even agree on what has already occurred.

In a prior life we were responsible for tallying the processors used in computing applications. We learned first hand how difficult and error-prone this data collection process can be. Neither those who make the chips nor those who buy them have much motivation to report their sales and purchases accurately to the organizations that collect and publish market statistics. Sometimes the suppliers just don't know. Intel, for example, cannot tell whether a Pentium processor that leaves its shipping dock ends up in a desktop system or a low-end uniprocessor server. AMD sees similar crossovers between Opterons designated for uniprocessor servers (the 1XX series) and desktop-targeted Athlon64X2's.

More importantly, measurements of unit market share as opposed to dollar market share can vary greatly. Given their high fixed cost structures, semiconductor manufacturers often focus on unit share, since higher unit volumes correlate with higher factory utilization and greater overhead absorption. But in the end, it's the dollar share that really matters. Fortunately, most manufacturers break out revenues by market segment. Although this data lacks the detail published by the market data firms, and totally omits unit volume information, the numbers that do get reported tend to be more accurate, since they appear in audited financial statements.

With this in mind, we calculated AMD's dollar share of the microprocessor market over the past thirteen quarters. Our methodology includes all of Intel's MPU revenues, including Itanium and Xscale chips as well as its x86 lines, but the former disappear in the rounding errors of the latter. Two facts from this analysis jumped out at us. First, AMD's dollar share of the x86 processor market increased by 210 basis points between Q4/2005 and Q1/2006. Second, AMD's dollar share has increased in eleven of the past thirteen quarters, and broke through the 10 percent barrier in Q2/2005. We cannot recall a prior period when AMD's dollar share of this market exceeded 10 percent. Even during the days when AMD's youthful 32-bit Athlon processor attained a unit share of almost 21 percent, AMD's ASP and mix kept its dollar share in the single digits. The dollar share shift over the past five quarters is truly unprecedented in this market segment, and highlights the challenge Intel faces as it brings its next generation products to market in the second half of the year.

Source: Intel and AMD Quarterly Financial reports


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