Server chip sales

Although server processors represent a small portion of Intel's shipments, the company makes more money on the sale of a server chip than on other processors. The company's struggles to get its Itanium server processor off the ground have been well documented, but Intel is also having competitive problems in this market.

The Opteron chip has lifted AMD's share of the x86 server processor market from virtually zero a few years ago to 14.3 per cent in the fourth quarter of 2005, according to IDC. Several high-end customers have installed Opteron servers, and the latest is Google, according to Mark Edelstone at Morgan Stanley. Almost all of that came at Intel's expense.

"Intel has never really had to deal with a competitor in the x86 space that had its act together," said Nathan Brookwood, principal analyst at Insight 64. "But how much of the problem is due to AMD's competitiveness, and how much is due to internal factors like chipsets and inventories?"

Intel has struggled to manage capacity over the last few years, as it has switched to new manufacturing technology. For example, stronger-than-expected demand for PCs last year forced it to stop making chipsets for low-end desktop processors, so it could concentrate on fulfilling all of its processor commitments. That left the door open for AMD to nab market share in desktop PCs. Desktop sales are only growing slowly worldwide, but still represent a large segment of Intel's revenue.