AMD Aims at Servers

It's a big day for Advanced Micro Devices (NYSE: AMD  ) . The upstart chipmaker will tonight in New York unveil three new dual-core Opteron chips for servers. And already the media is buzzing with headlines that suggest rival Intel (Nasdaq: INTC  ) is going to feel an inordinate amount of pain as a result of the launch. That certainly could be true.

Intel won't have a dual-core 64-bit chip for servers till the end of this year, at the earliest. Yet both IBM (NYSE: IBM  ) and Hewlett-Packard (NYSE: HPQ  ) are likely to take delivery of the new Opterons between now and late May. Why? The new chips can perform more tasks simultaneously. That's because of the dual "cores," each of which acts like a chip capable of handling instructions independently. Think of it a little like a fast-food joint with multiple cooks. More cooks equals more burgers flipped, which, usually, means more burgers sold. In data center parlance, more server processors means more information crunched. And that usually leads to better business.

The hookups with IBM and HP are extremely significant, too, because they could rapidly grow AMD's X86 server market share, which has historically sat below 5%. Indeed, industry researcher Gartner said in February that IBM and HP were first and second, respectively, in server revenue during last year's fourth quarter. HP, however, moved the most units, with Dell (Nasdaq: DELL  ) second and IBM third.

Now consider that researcher IDC pegged the total server market at $50 billion last year, and the X86 market, where the new Opterons will have an impact, at $6.3 billion in the fourth quarter alone. It's not a stretch to think that any meaningful expansion of AMD's market share will have a major impact on the computing group, which booked a record $750 million during the recently completed first quarter.

Still, that wouldn't have meant much a few weeks ago. But then AMD decided to drop the money-losing anchor that has been the Spansion flash memory unit. That means a growing chip business with decent margins and a not inconsequential competitive advantage may soon become available. And, for once, it's not Intel.

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Fool contributor Tim Beyers 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 a disclosure policy.

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