AMD: The Real Battle Begins

Give Intel (Nasdaq: INTC  ) credit. In April, an Intel spokesperson told me that the absolute earliest the firm could release its dual-core Xeon chips was October. More likely, however, was early next year.

Well, here it is, October. And this past Monday, trade magazine eWEEK reported that the chip maker is set to roll out the dual-core Xeon this month, with longtime partner and Motley Fool Stock Advisor pick Dell (Nasdaq: DELL  ) readying servers based on the new Xeon platform. That's a big step. Just how big, though, is an open question.

Rival Advanced Micro Devices (NYSE: AMD  ) began shipping its dual-core Opteron chips in April. The target market is roughly equivalent to that of the Xeon platform. Technically, however, there has already been wide acclaim for Opteron. Witness this review of the comparable technologies from trade magazine InfoWorld in September 2004.

I realize the study is a year old, but it raises an important question: Just what, exactly, has changed in the past 300-plus days? History says that it takes a notoriously long time to tune manufacturing processes to mass-produce better chips. Is it really fair to conclude that the new dual-core Xeon is as good as, or even better, than the Opteron? I'm not so sure, but the answer matters.

Think about it: When it comes to PCs, a few megahertz here and there in a microprocessor's clock speed doesn't mean much. (Ask yourself how many people bought Macs because of the PowerPC chip.) Not so in the server world. Servers drive the applications that drive commerce. The faster and more reliably they work, the more money that gets made. That's why IT managers take hardware performance seriously.

AMD has joined the war with Intel by playing up this point; the Opteron has been its chief weapon. And what a weapon it's been. AMD's deals with Hewlett-Packard (NYSE: HPQ  ) , IBM (NYSE: IBM  ) , and Sun Microsystems (Nasdaq: SUNW  ) have allowed it to claim more than 11% of the x86 server market in the second quarter, according to Mercury Research. That's more than double its historical norm and up almost 4% from the quarter prior. AMD now says it is aiming for 12% market share by year-end. Xeon appears to be all that stands in its way. Let the battle begin.

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Fool contributor Tim Beyers was reminded in writing this story that there's no salsa left in the refrigerator. Time to get back to the grocery store. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what's in his portfolio by checking Tim's Fool profile, which is here. The Motley Fool has an ironclad disclosure policy.


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