Chicago (IL) - A new report by Mercury Research confirms that Nvidia's strategy to deliver new graphics chips in volume is paying off: The company was able to capitalize on the delay of ATI's X1000 series. But ATI increased its dominance in the mobile market and more than quadrupled integrated chipset sales for desktop PCs.

The brutal battle between ATI and Nvidia for market shares in the desktop and mobile standalone graphics market continued in the third quarter of this year and shows promise that the two firms will reach further into the integrated graphics processor (IGP) market in quarters down the road.

Most significantly, Nvidia apparently had substantial success in translating its new 7800 graphics processor series as well as its volume availability form day 1 into additional sales. Nvidia's share in the standalone desktop graphics market climbed from 42 percent in the third quarter of 2004 to 50 percent in Q3 of 2005 - at the expense of ATI: Several months of delay of the X1000 series decreased ATI's market share in this segment and was serious enough for the company to lose market leadership ATI's share dropped from 55 to 47 percent year-over-year. Sequentially, Nvidia was up 4 percentage points, ATI lost 4 points.

Overall, the standalone graphics chip market grew about 6.5 percent in the past year and touched 20.5 million units in the third quarter.

Standalone graphics, however, remains the turf of ATI. According to Mercury Research, ATI increased its market share from 72 to 76 percent year over year, while overall sales in the segment were down sharply. The segment lost more than 20 percent, despite climbing notebook sales. Nvidia's share in standalone mobile graphics dropped from 22 to 22 percent during the quarter. ATI's dominance in the portable segment is even more apparent when it comes to 3D portable graphics only: The firm's share in this market is 71 and 88 percent (with integrated memory), as compared to Nvidia's 26 and 7 percent, respectively.

Beyond the battle between ATI and Nvidia, it was once again the integrated chipset that determined volume growth in the third quarter. For the desktop, Intel captured 61 percent market share, which was down 5 percent from one year ago - an effect that is likely caused by the chipset shortage the company currently experiences. Both ATI and Nvidia made significant strides in this low-margin segment with ATI's share climbing from 2 to 8 percent and Nvidia moving up from 2 to 3 percent. An agreement with Intel, which allows ATI to equip an entry-level Intel board with its chipset, is likely to boost the firm's share in this segment in coming quarters.

Intel appears to be virtually untouchable in the mobile IGP market. The firm expanded its market share from 61 to 78 percent and more than doubled its sales to almost 10 million chipsets in Q3 2005. ATI was able to increase sales by 17 percent, but dropped in terms of market share from 16 to 17 percent.

Mercury Research estimates that the total graphics chip market grew a moderate 7.3 percent to 68.5 million units in Q3 year-over-year. Intel's overall market share came in at 41 percent, ATI landed at 26 percent and Nvidia 18 percent.