Advanced Micro Devices ( AMD) grabbed one-quarter of the microprocessor market for the first time, thanks to increasing business relationships with top-tier PC makers.

According to Mercury Research, AMD's share of the total x86 processor market -- including desktops, notebooks and servers -- reached 25.1% in the fourth quarter, up from 23.3% in the third quarter.

Intel's ( INTC) share slipped to 74.4% vs. 76% in the third quarter.

Competition between Intel and AMD is fiercer than ever, with both companies' profit margins getting squeezed as a result of an ongoing price war.

And while Intel has gotten a boost in the server market because of new microarchitecture that it has used to refresh its entire product line, AMD is benefiting as large PC makers discover the merits of offering chips from both companies.

In 2006, Dell ( DELL) began offering AMD processors in its machines after years of exclusively using Intel chips.

This, along with increased business from companies such as Hewlett-Packard ( HPQ) and Acer, allowed AMD to add a couple of share points in the desktop and notebook processor market.

Intel, meanwhile, gained about one percentage point of share in the server market, thanks to its Woodcrest processor, as well as the new quad-core chips introduced at the end of the year.

"The quad-core made a meaningful contribution to Intel's shipments this past quarter," said Mercury Research analyst Dean McCarron.

Interestingly, while the latest figures mark a new high for AMD, they do not represent a new low for Intel.

In the early days of the PC microprocessor market, Intel was forced to license its technology to other chipmakers so that PC companies could ensure a reliable supply from multiple sources.

When Intel was selling its 80286 processor in the early 1980s, for example, there were four other companies selling versions of the processor.

Intel has always been the No.1 microprocessor company, but its market share has dipped into the 60% range at times, according to McCarron.

Shares of Intel were down 17 cents at $20.75 in midday trading Wednesday. AMD's stock was down 15 cents at $15.64.

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