Industry executives and analysts expect enterprise demand for PCs and workstations will begin to revive strongly in 2010 as companies embrace Microsoft Corp.'s Windows 7 operating system and as they are forced to replace aging equipment some analysts estimate are already four to five years old in many cases.

For this set of customers, however, only the best and most competitive products will make the cut, meaning the rivalry between Advanced Micro Devices Inc. and Intel Corp. will intensify in coming months with one of the two likely to gain sizable market share at the expense of the other.

Right now, it's looking like Intel is better positioned against AMD although the Sunnyvale, Calif., microprocessor and graphics IC company managed to hold its position and even improved revenue performance in the recently ended quarter.

Still, it was obvious Intel made the most gains with its market share rising above 80 percent and moving closer to the 82.4 percent it claimed in the third quarter of 2005, according to market researcher iSuppli Corp. Also, although Intel's revenue fell on a year-over-year basis during the third quarter, the 8 percent drop was not as severe as AMD's 23 percent decline during the same period.

The two companies were better matched on a sequential basis, with sales rising 17 percent from the second quarter at AMD and approximately 17.5 percent at Intel.

It wasn't especially difficult for both companies to meet and even exceed their sales estimate for the third quarter. Semiconductor and OEM PC inventories were down sharply across the industry during the quarter helping to boost demand as AMD chief operations and administrative office Robert Rivet pointed out during a conference call Thursday (Oct. 15.)

"Every city is different but it's hard to find a computer currently in the stores in Austin, Texas," Rivet said. "The OEMs have done a very good job of bleeding down inventories in anticipation of the Windows 7 launch later this month. The supply chain is as tight as can be and it's prepped for the launch of these new products."

Executives at Intel have the same observation, noting during their own conference call with analysts earlier this week that "inventory in the channel remains slightly below normal levels, reflecting both good sell-through as well as disciplined inventory management," according to Paul Otellini, president and CEO. "At our large OEM customers, component inventories are roughly half the peak level of late last year and have been approximately flat throughout 2009."

Normal market conditions are expected to resume sometime in the fourth quarter and stretching into the traditionally weaker first quarter. AMD is expecting fourth quarter sales to be up "modestly" while Intel is predicting sales of $10.1 billion—plus or minus $400 million—up between 7.5 percent and 11.7 percent sequentially from $9.4 billion in the third quarter.

The competition for enterprise PC sales will be stiff. While the corporate IT equipment market is forecast to begin growing towards the end of this year and strongly in 2010, companies will be very discriminatory about how they deploy their tight budgets and this could put pricing pressure on OEMs as well as their microprocessor suppliers.

Intel's advantage is in its broader product lines as well as the efficiencies the company is gaining from its manufacturing capabilities. Already, Intel is shipping products at 32nm while GlobalFoundries, AMD's manufacturing division is only beginning to move in that direction with customer samplings expected to start in the first half of 2010 and production ramp in the second half, according to Meyer.

While AMD's financial position has strongly improved from the year-ago period—it has retired about $419 million in convertible notes over the last year—the company is still struggling. It still has considerable long-term debts and its ability to compete against Intel is severely limited by both the debt position and resources for capital expenditure as well as research and development.

In 2009, for instance, Intel is budgeting $4.5 billion for capital expenditure compared with $650 million for both AMD and GlobalFoundries.

Executives at AMD don't see this as a major hindrance to their competitiveness, however, noting that the joint venture partners in GlobalFoundries are committed to raising the capital required to making the company a major player in the foundry business.

AMD will benefit greatly from this since it is likely to remain GlobalFoundries' largest customer for the foreseeable future, according to Meyer.

"We are Global Foundries' only customer today and even [under] the most wildly successful scenarios for Global Foundries, we still are a big important strategic customer, particularly given that we will procure technology and wafers at the leading edge," " Meyer said.

"Part of the relationship here is that by virtue of us driving so much volume at the leading edge, they're going to be highly motivated to tune their offering to the needs of our products," he added.