ATI Technologies lost ground in every major graphics product category during the third quarter, and its acquisition by Advanced Micro Devices is likely to blame, according to Jon Peddie Research.

The purchase put ATI directly in competition with one of its major partners, Intel, analysts say, which is the main reason ATI's market share dropped. For the past few years, ATI has supplied the market with integrated graphics chip sets compatible with Intel microprocessors, but the purchase by AMD has slowed that gravy train. Although ATI can still make the chip sets, component makers in Taiwan say it hasn't been selling as many as before.

Jon Peddie Research figures bear out the difference. ATI's PC graphics market share slumped by 5 percentage points in the third quarter to 23 percent, from a 28 percent share in the second quarter of this year. Although ATI retained its hold on second place worldwide, it's a steep drop.

ATI rivals Nvidia, Via Technologies, and Silicon Integrated Systems (SiS) all gained share during the three month period, while graphics leader Intel maintained its market share.

The most dramatic market share decrease for ATI was in the mobile segment. ATI's share of the segment fell to 47 percent in the third quarter, from 63 percent in the second quarter. Nvidia picked up the slack, taking a 53 percent share in the market, up from 37 percent, according to Jon Peddie Research. The researcher also charted lost share for ATI in notebook PC and desktop PC graphics processors and integrated chipsets.

The problem wasn't with the graphics chip market overall, either. Major vendors shipped approximately 76 million graphics devices during the quarter, up 5.2 percent over the second quarter and a gain of 11.2 percent compared to the same time last year.

The trouble lies solely with ATI, the market researcher noted.

AMD completed its $5.4 billion purchase of ATI in October. The company plans to use ATI to add graphics technology to microprocessors by 2009, in a project it calls "Fusion." The integration will increase power efficiency, AMD says.

Chip makers have already integrated graphics into chip sets, and PC makers can also buy stand alone graphics processors to place on motherboards or graphics cards.