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AMD Opts for More Opteron

Editor's note: This story originally indicated that AMD's new Opteron was shipping as a quad-core chip. It isn't. We regret the error.

Just two weeks after announcing more market share gains in servers, Advanced Micro Devices (NYSE: AMD  ) is trying to stick it to Intel again. This time, it's a new version of the highly successful Opteron server processor that captured Dell's (Nasdaq: DELL  ) heart in May.

The new chip, creatively known as "Rev F," supports virtualization in silicon, which means it can more easily handle commands from multiple operating systems residing on the same computer. Virtualization has recently become an increasingly popular option among businesses because it allows for more efficient use of computing resources. And while somewhat new to consumers, virtualization has created a renaissance of sorts for Apple (Nasdaq: AAPL  ) , which now ships Macs capable of booting Windows.

AMD also plans to make Opteron a quad-core chip as of the middle of next year. Multi-core chips increase performance by handling more tasks simultaneously, which in industry-speak is known as multi-threading.

Thus far, AMD and Intel (Nasdaq: INTC  ) have been limited to dual core chips. Upping the count to four cores should help Opteron boost performance. But Intel also plans a quad core server chip by the end of the year. The difference, says AMD, is that its next-generation Opterons will use the existing server microarchitecture, which, in turn, should help keep power and heat under control.

In-Stat analyst Jim McGregor isn't so sure. "It is not clear if trying to cool down a 130 (watt) part is going to be easier or more difficult than just going with two dual-core processors," he told me. "To AMD's credit, however, they will be introducing a monolithic design that could theoretically provide better power and bus management."

Nevertheless, AMD's intentions are obvious. "We doubled the number of design wins in servers from 2005 to 2006. We anticipate doubling the number of design wins in the next year as well," John Fruehe, AMD's worldwide development marketing manager for Opteron, told me last week.

Expect server makers to aid the cause. Hewlett-Packard (NYSE: HPQ  ) , IBM (NYSE: IBM  ) , and Sun Microsystems (Nasdaq: SUNW  ) all plan boxes based on the new chip. It's a good bet Dell will follow suit.

And that has investors seesawing their way back to AMD shares, which are up more than 9% since the announcement on Tuesday morning. I get the enthusiasm; Intel is back on the defensive. There's just one problem: AMD is priced for the 33% market share it has said it would garner using design wins from Dell and others.

Opteron F may be impressive. Heck, it may even be revolutionary. But it also seems to me the least investors were expecting. You'll have to pardon me if my inner contrarian refuses to buy when the hype-meter goes off the charts.

Allow us to chip in with related Foolishness:

Intel and Dell are Motley Fool Inside Value selections. Ask us for anall-access passto the service and you'll be privy to chief advisor Philip Durell's best picks, which are collectively beating the market by roughly 2% as of this writing. You'll also receive instructive lessons on valuation and company analysis. Give Inside Value a try; it's free for 30 days.

Dell is also aMotley Fool Stock Advisorpick.

Fool contributor Tim Beyers owns LEAP options in Apple. You can find out what is in his portfolio by checking Tim's Fool profile. The Motley Fool's disclosure policy is like a cold drink on a hot day.

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