Due to rising demand towards higher-performance central processing units (CPUs) back in Q4 2007, Intel Corp., the world’s No. 1 supplier of x86 chips, gained some market share, whereas its smaller rival Advanced Micro Devices could not sustain its part of the market, recent figures by IDC research indicate.

Demand for Microprocessors Exceeds Expectations

Worldwide personal computer (PC) microprocessor shipments grew 8.5% sequentially in the fourth calendar quarter of 2007 to reach record levels for the second quarter in a row, according to new data from IDC. Growth in overall unit shipments and stable average selling prices stimulated overall market revenue to grow 9.6% sequentially to $8.7 billion.

“Overall market pricing was very stable in the quarter. Since server and mobile processors carry a premium over desktop processors and they grew more than desktop processors, they buoyed the market average price,” said Shane Rau, director of semiconductors: personal computing research at IDC.

Shipments of processors designed for PC servers stood out in the quarter, growing 17.0% sequentially, while shipments of processors for mobile PCs grew 10.3%, while processors for desktop PCs grew 6.5%.

For the full year 2007, total worldwide PC processor shipments grew 12.6% compared to 2006. Total revenues grew 1.7% to $30.55 billion. The disparity of unit growth and revenue growth indicates the degree of price erosion that occurred early in the year 2007.

Microsoft Windows Vista Drives Demand for Higher-Performance PCs

IDC analysis also reveals that the percentage of high-end and mainstream processors grew at the expense of low-end processors across all market segments (desktop, mobile, server). For example, in the desktop processor segment, high-end and mainstream processors represented 87.1% of processors shipped in Q4 2007, up from 84.6% in Q3 2007. The rising demand towards chips with higher performance signals that many consumers find current low-end microprocessors unsuitable for using in current environment. In particular, slow microprocessors do not allow to take advantage of Windows Vista operating system as well as some other software.

“The fact that the high-end and mainstream segments within all form factor segments grew faster than the value segments kept pricing even firmer. We attribute this result to the aggressive pricing at which suppliers introduced new products in Q2 2007 combined with the demand for more robust PC configurations necessary to support Windows Vista. As the year progressed into Q4 2007, the pricing drew in more buyers who wanted these relatively high-end products to support this operating system,” Mr. Rau added.

Intel Gains, AMD Loses

With shift towards performance microprocessors, there is no surprise that Advanced Micro Devices lost market share to Intel Corp., even though processor vendor shares in Q4 did not change significantly from the previous quarter. On an overall unit basis, Intel earned 76.7% market share, a gain of 0.4%. AMD earned 23.1%, a loss of 0.4%. These shares are identical to the shares of Q2 2007.

By form factor, market share changes were very modest. In the mobile processor segment, Intel earned 81.9% share, a gain of 1.1% and AMD earned 17.8%, a loss of 1.1%. In the desktop PC processor segment, Intel earned 72.1% share and AMD earned 27.7%; share changes were negligible, which means that the modest drop in AMD’s market share should be attributed to both lack of high-end CPUs for desktops as well as the lack of mobile chips to fight against Intel’s 45nm product lineup that began shipping last quarter. In the PC server processor segment, Intel earned 85.4%, a loss of 0.6% and AMD earned 14.6%, a gain of 0.6%.

Back in Q4 the globe’s second biggest supplier of x86 CPUs found that its quad-core microprocessors for servers and desktops contain an erratum, which correction causes performance degradation and which presence may affect stability. Despite of market trends towards higher-performance chips in desktops and notebooks, AMD said recently that its customers demanded low-performance energy-efficient processors for their desktops and that higher-performance quad-core chips with corrected erratum will be available only in Q2 2008.

Given that IDC uses different market share determination methodology, its figures cannot be directly compared with historical figures by Mercury Research.

IDC “Conservative” about First Half of 2008

IDC has a conservative forecast for PC processor demand in Q1 2008 and Q2 2008 due to potential economic recession in the USA and consequential weak corporate spending. On the other hand, if other markets see CPU prices declining, this could spur some growth in those regions.

“While processor shipments typically decline about 6% to 7% between the fourth quarter and the first quarter, economic concerns in the U.S. and the effects on corporate and consumer systems purchases could mean a stronger sequential decline in Q1 2008. However, the weakness in the U.S. dollar effectively means a price discount for overseas markets that are driving PC unit demand, so this could have a mitigating effect,” said Mr. Rau.

IDC expects that mobile processors will continue their strong growth in 2008.

“Despite how overall demand may affect them in the first half of 2008, mobile processors will continue on a double-digit growth track for the year and on track to surpass desktop processors in 2009,” said Richard Murphy, IDC inquiry analyst.