This is how competition is supposed to work. Two strong tech companies battle for sales, market share, and technical bragging rights using all of the tools at their disposal: R&D, efficient production, price cuts, and marketing campaigns. The winners are the businesses and consumers who buy the systems that run on the vendors' products. The losers? Perhaps only the companies' shareholders, who watch as profit margins narrow.

The battle between processor powerhouses Intel and Advanced Micro Devices is one of the fiercest in the tech industry. After Intel dominated for many years with its x86 line of PC and server chips, AMD upped the stakes in the server market in 2003 with its Opteron line. It caught Intel off guard by overhauling its memory design, pushing out combo 32-bit/64-bit processors when Intel was advocating a 64-bit approach with Itanium that required rewriting applications. Then AMD hit its stride with a powerful dual-core processor. It also undercut the industry leader on price. The result: AMD's server and workstation market share rose from 2.8% in 2003 to 27% in 2006, according to the company.

The Empire Strikes Back
Now the Intel empire is striking back with a string of quad-core processor releases, a new relationship with Apple to run Intel processors on the Mac, and, most recently, new inroads with system vendor Sun Microsystems. Sun and Intel announced a nonexclusive deal last week under which Sun's x86 servers will use Intel's Xeon chips. The companies will work together on engineering, design, and marketing, and Intel will certify Solaris as a "mission-critical" operating system. Sun also will use Intel's single-, dual-, and quad-core processors in its servers and workstations.

Sun adds Intel to the fold, but don't count AMD out.

AMD had a sweet deal with Sun, previously its exclusive system partner. Now it's trying to put a positive spin on the Intel news. Kevin Knox, VP of AMD's commercial business, says the deal wasn't a surprise, as Sun has been looking for new channels for its Solaris-based systems. He argues that everything will change with the release of AMD's native quad-core processor midyear.

"We're still kicking the bear," Knox says. "They're more competitive today, but we're still winning our share. It will be competitive, yes, for the next several months. Quad core will be our breakaway." Intel declined to be interviewed for this story.

Intel was first to market, in November, with a quad-core chip. Since AMD won't put a tighter time line than "midyear" on the release of its quad-core processor, Intel has a seven- to nine-month head start. AMD insists that Intel simply lashed together two dual cores and that its quad core will be superior in terms of performance and energy consumption. In a market this competitive, though, being first is always an advantage.

Industry watchers are cheering on the battle. "Without this competition, we wouldn't have seen the move to 64-bit as quickly," says Dan Olds, an analyst with Gabriel Consulting Group. "We'd be a lot further behind if AMD hadn't come out with its successful Opteron, forcing Intel to respond. Then AMD did it again with dual core, forcing Intel to respond. Now, Intel is first out of the gate with quad core and AMD has to respond. This means we're all getting faster chips, cheaper."

Charles King, an analyst with Pund-IT Research, says Intel tried to "laugh off" Opteron at first, but "when customers bought Opteron in droves, Intel had to rethink that. I'm not sure Intel will ever recover the kind of market dominance they had before Opteron."

But no one should count out a company with as many financial, intellectual, and technical resources as Intel. And now it has the momentum, having updated 22 processors in its PC and server lines last year, King says. No matter which vendor you're betting on, the customer will come out the winner.