Shares of Intel ( INTC) crept up Tuesday as investors responded to the long-awaited debut of the company's next-generation chip. Intel is touting its Xeon 5500 processors, which were launched on Monday, as its biggest chip announcement since the Pentium Pro nearly 15 years ago. The server-based version of the company's Nehalem processor offers twice the performance of its predecessor, the Xeon 5400, supports high levels of virtualization and can adjust to prespecified energy levels, according to Intel. "The Intel Xeon processor 5500 series is the foundation for the next decade of innovation," said Patrick Gelsinger, senior vice president and general manager of Intel's Digital Enterprise Group. "These chips showcase groundbreaking advances in performance, virtualization and workload management." In response to the news, Intel's shares rose 37 cents, or 2.5%, to $15.09, outpacing the broader advance in tech stocks that saw the Nasdaq rise 1.5%. Some tech sector heavyweights, notably Dell ( DELL) and Hewlett-Packard ( HPQ), have already unveiled Nehalem-based server products, and Apple ( AAPL) is using a desktop version in its newest Mac Pros. On Monday Intel said that more than 230 systems based on Xeon 5500 processors will be announced by more than 70 system manufacturers including Dell, Fujitsu, IBM ( IBM), Sun Microsystems ( JAVA) and Cisco Systems ( CSCO), with its new UCS product. Intel, which is sitting on a mountain of aging PC chips, is clearly looking to the server market to offset the ongoing slump in computer sales. "We believe Intel incrementally benefits from Cisco's entry (likely sole sourced from Intel) into enterprise servers," wrote Doug Freedman, an analyst at Broadpoint AmTech, in a note released Monday. "We believe the dual socket
server market has been and likely continues to be controlled by Intel-based products."
Software companies supporting the new processor include Citrix ( CTXS), IBM, Microsoft ( MSFT), Novell ( NOVL), Oracle ( ORCL), Red Hat ( RHT), SAP AG ( SAP), Sun Microsystems and VMware ( VMW). The coming months promise to be very interesting in the chip sector. Intel's rival AMD ( AMD), for example, is expected to launch its own next-generation processor, code-named Istanbul, later this year. With chip manufacturers fighting for a share of users' shrinking tech budgets, however, there is heightened tension in the market. Intel and AMD are already embroiled in a licensing dispute, and graphics chip maker Nvidia ( NVDA) has also locked horns with Intel.