As if Intel Corp. (INTC) needed any more bad news after all the grief ARM Holdings plc (ARMH) is giving it, it appears that Advanced Micro Devices, Inc. (AMD) may be closing the gap in notebook and netbook sales.

Late last month, Microsoft's Bill Koefoed, general manager of investor relations, reported "a 40 percent decline in Netbooks" in Q1 2011.  In Q1 2010, netbooks sold about 10 million units, so this indicates that about 6 million netbooks sold in January, February, and April.  If that pace were sustained, through May around 10 million netbooks would have sold.

AMD's Raymond Dumbeck announced this week that AMD sold 5 million "Fusion" chips in the first five months of the year.  AMD's Fusion chips went into a mix of 10-, 11-, and 12-inch notebooks.  Given that the line between a "netbook" and "ultra-portable PC"/"small PC" lies somewhere in 11-12 inch range it seems like a fair guess that A.MD sold about 3 million "netbooks" -- or about a third of the total market (~10 million units)

That's incredible news for AMD which traditionally had little sales success in the mobile sector and virtually no sales in the netbook sector.

The flip side of the AMD victory is that Intel's ultra-mobile Atom processor appears to have bled a great deal of market share in a very short time.  Atom has suffered as AMD reportedly undercut it with Fusion and delivered a superior on-chip GPU compared to Intel's solution.

Intel's only saving grace has been that the rush to Fusion has taken AMD somewhat as surprised.  Mr. Dumbeck comments that the company is currently sold out of its existing stocks.  That shortage slowed sales from approximately 3.9 million in the first quarter to a mere 1.1 million the next two months.

That brief reprieve for Intel may be short-lived, though.  AMD is reportedly working to increase shipment of existing Fusion processors, as well as widening the channel to include new models.

AMD's current Fusion CPUs fall into the Brazos family, which feature the company's new mobile Bobcat core.  They are split between Ontario, which features lower power consumption and lower clock speeds, and Zacate, which features slightly higher power requirements and clock speeds.  Both Brazos flavors are built on a 40 nm process.

The company is preparing to ship a new type of Fusion "advanced processing unit" (APU) codenamed Llano.  Llano packs a beefier K10 core (found in the Phenom II and Athlon II processor lines), but a die shrink to 32 nm should help to mitigate the power bump, slightly.  The processors are expected to come in dual core and quad core varieties and fall between 25 watts and 100 watts in power consumption.

Intel doesn't exactly have a new processor that can compete at the same market point as Llano.  Atom will be much weaker than Llano.  Sandy Bridge will be much more powerful, but will also be more expensive.  The lack of a mid-market CPU offering from Intel should help Llano see strong sales when it begins shipping early next month.

Brazos has clearly exceeded AMD's wildest expectations.  With support from Dell Inc. (DELL), Sony Corp. (TYO:6758), Acer Inc. (TPE:2353), Hewlett-Packard Company (HPQ), and Lenovo Group Ltd. (HKG:0992) AMD's Fusion project is seriously threatening Intel's netbook and notebook processor offerings.

With 28 nm enhanced Bobcat 1-4 core models and 32 nm 2-4 core Bulldozer based models due out next year, AMD clearly hopes to continue to apply the performance pressure on Intel's Atom line and pricing pressure on Intel's Sandy Bridge line.

As with its success in the GPU market, AMD's turn-around owes to the company shifting its focus to the consumer budget and mid-market sectors, versus the traditional enthusiast race that it has waged versus competitors in the GPU and CPU markets.  A company focusing on the majority of consumers, versus a select few?  What a novel thought!  But it sure appears to be working for AMD.