Investors are finally coming around to ATI Technologies ( ATYT), but the company's believers argue there was no reason to leave in the first place.

Despite its recent struggles -- including a $103 million loss in its latest quarter, which ATI reported Thursday -- ATI has maintained a leading share of the graphics-chip market, industry analysts say. The company's problems were largely short term in nature, and the company appears poised to maintain share going forward, they argue.

Archrival Nvidia ( NVDA) "has been looking better to investors than ATI ... they haven't suffered the travails that ATI has," says Jon Peddie, an industry analyst and founder of Jon Peddie Research. "But that doesn't mean that ATI is a failure. They've suffered setbacks, but they're still strong players."

The market seems convinced. Although the stock is still down 37% this year, it has risen 36% since bottoming out in August. And despite reporting its big loss Thursday morning, the company's stock closed regular trading for the day up 94 cents, or 7%, to $14.20, as the company's outlook for the current quarter came in above expectations.

Indeed, it's the notion that expectations have gotten so low that the company doesn't need to do much for investors to start bidding the stock back up, says one buy-side analyst, who asked not to be named.

"They don't need to trade places with Nvidia, they need to stop shooting themselves in the foot," says the analyst, whose firm bought the stock amid its recent lows -- and has since seen a greater than 10% return. "It's been a nicely moving stock when a lot of things were not working. Longer term, they're certainly well-positioned."

A first big step in turning around the "poor man's Nvidia" perception happened earlier this week, when ATI finally released its new line of high-end chips. ATI had delayed the launch of the Radeon x1000 line for months, falling behind Nvidia, which launched its own new high-end chip line earlier this year.

The delay earned ATI a black eye in the enthusiast press and with investors. But industry analysts say it shouldn't really hurt in the longer term. Because high-end chips such as Nvidia's 7800 cost several hundred dollars, they have limited demand, meaning that they account for only a small fraction of the overall graphics market.

Nvidia "is doing very well with a very expensive board, but they can't sell that many of them," Peddie says.

Nvidia did get some important backing when Dell ( DELL) announced that it would offer the 7800 chips in its new XPS line of gaming computers. And ATI may have missed out on similar deals because of the delay, analysts say.

But that doesn't mean ATI's chip is dead on arrival. "All else being equal, had ATI delivered earlier, would they get the x1000 chips into more products this year? Yes," says Dean McCarron, principal analyst at Mercury Research. But he adds that ATI delivered the chip "in time to capture a significant portion of holiday business."

Meanwhile, in the bread-and-butter of the graphics-chip business -- lower-priced chips targeted at mainstream consumers and computer systems -- ATI is more than holding its own, analysts say. In the second quarter, ATI's share of the market for so-called discreet graphics chips for desktop computers was 51%, compared with 46% for Nvidia, according to Mercury Research. ATI's portion of the discreet chip market for notebooks was a dominating 73% in the quarter, also according to Mercury Research.

More significantly, in terms of the overall market for graphics chips, which includes not just discreet chips but those integrated into chipsets with processors from Intel ( INTC) and AMD ( AMD), ATI's share has barely wavered, despite its troubles. In the third calendar quarter of last year, the company held 27% of the overall market, which was the same portion it held in the second quarter of this year, according to Jon Peddie Research.

"The missteps that have occurred to date have been more impactful on their financial figures than they have been on their market presence," says McCarron.

In addition to the delay in launching the new high-end chips, ATI erred by being too optimistic about overall demand. That optimism led to overproduction -- and a $67 million inventory write-off in the company's most recent quarter.

But the demand issue was industrywide, says McCarron, noting that Nvidia's sales slowed in the second quarter on a sequential basis -- about the same time ATI's were slowing. Nvidia just managed the slowdown better than ATI, he says.

"That was essentially a one-time event," he argues, adding that any company in the industry can be caught unawares by lighter-than-expected demand.

Investors are starting to buy the idea that ATI's stock could make a good turnaround play.

"They've had issues, but that's what makes this a nice story : They can fix stuff," says the buy-side analyst. "All the things they need to fix are very fixable."

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