Cross-town chip rivals Nvidia (Nasdaq: NVDA) and AMD (NYSE: AMD) sparred in the graphics chip market during the fourth quarter of 2006, with most recent data indicating that AMD gained ground in the latest quarter but it wasn't enough to keep Nvidia away from the top spot.

Sunnyvale Calif.-based AMD - which bought Nvidia’s largest graphics hardware rival, ATI technologies last year for $5.4 billion – grabbed a 24 percent market share in the latest quarter, up 3 percent from the previous quarter. Nvidia, however, captured 29 percent of the market for the second straight quarter.

The figures come from the latest Mercury research results, which track companies competing in graphics chips in two desktop categories and two notebook categories.

In the standalone desktop market, where consumers buy add-in boards to enhance their current PCs, Nvidia won out. Though its share declined from 56 percent in the third quarter, to 52 percent in the fourth, the firm maintained its lead over AMD's 47 percent share, which was up 5 percent.

Many desktop computers are shipped with built-in graphics solutions as well, creating a segment called integrated desktop graphics. In this area, AMD grew from a 7 percent market share in the third quarter to 10 percent last quarter. Nvidia had a 20 percent share and semiconductor giant Intel Inc. captured a leading 52 percent share.

In the mobile standalone graphics segment, AMD and Nvidia combined for 99 percent of the market, with little competition from other players. AMD's share dropped to 42 percent from the 47 percent it achieved the previous quarter, while Nvidia extended its lead to 58 percent, up from 52 percent.

Part of Nvidia’s success has been its growth in unit shipment, which went up 30 percent quarter over quarter compared to the rest of the market which grew only 3 percent, according to analyst Sidney Ho of Merrill Lynch.

Ho attributes Nvidia’s growth to its ‘disproportionate presence’ in notebook computers equipped with Intel’s Centrino mobile platform.

AMD did pull ahead from its rival in graphics integrated into notebooks, however. It had 19 percent of the market, up 1 percent from the previous quarter. This beat out Nvidia's 12 percent, which was up from 8 percent. Intel again dominated the integrated market space with 66 percent of the market, although it was down from a 71 percent market share last quarter.

Despite the loss in Market share for Intel, Ho felt that the company’s upcoming fourth-generation Centrino platform for Notebooks, code-named “Santa Rosa,” would help.

Looking forward, we expect Intel’s share to remain strong with the launch of Santa Rosa platform in Q2, and NVIDIA is in a good position to gain more share against AMD, Ho said.

At the close of the trading day Friday on the Nasdaq Stock Market, Nvidia shares rose 39 cents, or 1.27 percent to $31.04, while Intel shares rose 15 cents, or 0.72 percent, to $21.11. AMD shares trading on the New York Stock Exchange rose 22 cents, or 1.41 percent, to close at $15.77.