Propelled by strong sales of laptops, where it claims the No. 1 market share, graphics chipmaker



could sail past expectations when it reports earnings Friday morning.

The consensus estimate holds that ATI will post sales of $365 million and earnings of 10 cents per share.

But several analysts expect the company to beat those numbers, given strong sales of laptops of late. In their latest quarters,


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reported notebook unit sales up a respective 54% and 37%.

At Bear Stearns, analyst Gurinder Kalra has penciled in consensus-topping estimates for ATI of $380 million in sales and 12 cents in earnings for the quarter.

"ATI should be a prime beneficiary of the strength we are seeing in the notebook PC market, given its dominant 59% share in the notebooks graphics market," he predicts, noting that laptop chips account for about 35% of ATI's revenue. Bear Stearns has no banking relationship with ATI.

Likewise, Harris Partners analyst Jonathan Hykawy believes ATI could blow past analyst expectations with sales as high as $382 million and earnings between 11 cents and 14 cents.

Further boosting its momentum, ATI scored a couple of ego-boosting design wins earlier this week. Tuesday the graphics chipmaker said Taiwan-based


will start selling motherboards with ATI's Radeon graphics cards later this month. ATI also announced a co-marketing deal with an eagerly awaited computer game, saying it will bundle free copies of Half-Life 2 with some of its products.

In another development that bodes well for ATI, one of its just-released graphics chips outperforms that of rival


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by as much as twofold, running on the latest programming interface from


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Against that backdrop, once-dominant Nvidia has come to be viewed as a relative laggard. The stock

took a beating back in August on its last earnings report, dropping 20% in intraday trading after Nvidia forecast weaker-than-expected guidance and said gross margins may drop.

Nvidia has lately suffered from its heavy reliance on desktop PCs, which have trailed behind laptop sales. And while analysts cautiously praise its recent $70 million purchase of handheld device chipmaker


, which should allow it to expand outside its core desktop market, most want to see results before they get more enthusiastic on the shares.

A look at financial outlooks underscores the disparity: for ATI's August quarter, analysts are gearing for year-on-year sales growth of a hefty 53%, compared to the outlook for growth of merely 13% for Nvidia's October quarter. (Nvidia admittedly claims a bigger sales base, with expected sales of $487 million compared with ATI's $365 million).

While Nvidia's earnings per share are expected to double to 12 cents -- an impressive performance, by any measure -- EPS at ATI is expected to do even better, zooming from a penny to 10 cents.

Analysts say the burden is now on Nvidia to prove it can catch up.

ATI's performance lead on its latest high-end products presents Nvidia with "a significant hole to work its way out of," says Hykawy, noting that ATI's cheaper silicon could also see a trickle-down benefit. "It's called the halo effect," he says. "If Ferrari offered a high-end road car for less than $250,000, people would anticipate it to be faster than the competition because of the

name brand badge. In the same way you expect a mainstream graphics card from ATI at this point to be a good card. Two or three years ago you would have expected to have something of a dog, for Nvidia to have the advantage."

Besides surpassing Nvidia on performance, ATI also claims an edge on the supply side. "ATI chips are cheaper to manufacture because the piece of silicon they occupy is smaller than the chip from Nvidia. So there's not only a performance advantage but also a gross margin advantage," says Hykawy. He has a strong buy rating on ATI and an underperform on Nvidia; his firm hasn't done banking for either.

But even if ATI has landed some wins against Nvidia, there's one more player to keep in mind:


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, which can claim to have stolen share from both companies.

"People focusing on graphics so much look at Nvidia and ATI and not anybody else. They see Nvidia losing share and assume share is going to ATI rather than to another large player like Intel," notes Dean McCarron, president of Mercury Research. But in fact, Intel's integrated graphics chipsets have been grabbing up low-end business.

According to Mercury, ATI saw its share of the total graphics chip market slide to 21% in the second quarter of 2003 from 23% a year ago, while Nvidia's share dropped to 27% from 36%.

Meanwhile, Intel saw its share grow to 32% from 20%.

Leaving Intel out of the mix and just comparing Nvidia and ATI in higher-end, standalone graphics chips, McCarron says the two have actually seen relatively little share shift. "Some people have expectations that will change," he notes. "I'm not about to stick my hand in that beehive. But it's clear that compared to two years ago, ATI is far more competitive than it had been previously."