Intel's new faster chip right on AMD's heels

Intel showed off a new chip Tuesday that has direct access to memory in computers, invading one of the last market niches dominated by Advanced Micro Devices.

The world's biggest semiconductor maker for the first time is combining the memory and processing functions into a single chip. The result is a processor that helps pull up data and perform calculations faster. Other features boost the ability to handle video and sound files, and share work among computers.

While AMD has had a memory-controlling chip on the market since 2003, new processors using the design were delayed and didn't catch on with customers, analyst David Wu said. The Santa Clara, Calif., company will have a performance lead until 2010, he said.

"We don't need to go to the Olympics to know who's won the gold medal," said Wu, who follows chip stocks for Global Crown Capital in San Francisco. He has a "neutral" rating on Intel and doesn't own the shares. "They've got the best microprocessor right now and will have through the end of 2009."

The chip, named Core i7, may help Intel Chief Executive Officer Paul Otellini increase sales of more profitable processors for the servers that run corporate databases and Web sites.

Intel's most expensive server chips sell for $3,157 each, compared with $1,499 for the most costly desktop part.

Year's delay

Senior Vice President Patrick Gelsinger demonstrated the new chips Tuesday at the annual Intel Developer Forum in San Francisco. A computer equipped with the new product was able to render animated images twice as quickly as one with older chips.

More than 5,000 computer and software engineers are attending the show, which runs through Thursday.

AMD's server chips outperform their existing Intel rivals and will be improved by a new manufacturing technique before the end of the year, said John Fruehe, who heads business development for the company's Opteron server line.

The Sunnyvale, Calif., company's latest version of the chip, called Barcelona, went on sale at the end of the first quarter of this year, about a year later than planned. The latest release included a fix of a problem that occurred when the chip was first sold last year.

"Once Barcelona came out below specification, slow and late, Intel went to being ahead," said Cody Acree, an analyst based in Dallas for Stifel Nicolaus & Co. "Barcelona was an opportunity for them to leapfrog and push back ahead. Unfortunately, Barcelona simply didn't happen."

Faster speed

Microprocessors run software in computers and use memory chips to store data while they make calculations. By building the memory-controller function into the processor, AMD's chips have been able to run databases and Web sites faster.

"It mimics a lot of AMD's prior advantages," Acree said of the new Intel chip. "Right now it's Intel's game to lose and AMD has to do something."

If the chip performs well, it could increase Intel's market share, boost profitability and help Intel's share price move back toward $30, Acree said.

The Core i7, which will go on sale this year, is based on a chip design that Intel code-named Nehalem, after a coastal town in Oregon west of its factories outside Portland. The design will become the basis of all of its processors starting next year, the company says.

Separately, Intel said Tuesday it plans to begin selling computer hard-disk drives based on flash memory in the next 30 days. Flash memory relies on chips, rather than spinning magnetic disks, to store information.

Intel is trying to turn around its money-losing memory-chip business by selling more flash storage for desktop, server and notebook computers. By pairing flash with its controller chips, Intel aims to provide drives that outperform existing models.

Intel controls 77 percent of the market for PC processors, according to researcher IDC in Framingham, Mass. AMD holds all of the rest except for the less than 1 percent of Taiwan's Via Technologies. In servers, Intel has 87 percent.

Intel also will use the show to update developers on its plans to expand the market for microprocessors beyond computers. CEO Otellini has predicted that sales of so-called embedded processors, chips that run automated teller machines, cash registers, and car entertainment and navigation systems, may generate sales of $10 billion opportunity by 2011.

Senior Vice President Eric Kim will make a presentation today on attempts to persuade electronics makers to add Internet access to televisions, set-top boxes and other home-entertainment products by using Intel chips.

While Intel gets more than $1 billion in annual sales from the embedded market, investors overlook its potential because the company has struggled to move into other markets, including the mobile-phone-chip business, said Stifel Nicolaus's Acree.

"It's definitely a 'prove it to me' story," he said.