About 10 years ago, AMD did not much more than reverse engineer Intel's CPU designs. An AMD 486 was almost the same thing as an Intel 486. Well, times have changed, that is the least we can say. AMD has been designing its own CPU's since '93 when it became clear that AMD would not be allowed to copy Intel's Pentium. Although the K5 failed, the K6 and the K7 have claimed their part of market, and showed that AMD's engineers were capable of designing potent CPUs.
With the introduction of 3DNow!, AMD took a really bold step: it extended the x86 instruction set. The x86 instruction set is the language of all Intel compatible CPU's. It is a collection of instructions that the CPU can execute, but the instruction set also defines the available data types and the memory model.
The x86 was designed in the late '70's by Intel, and has been extended since then, but the basic principles have never been changed. In other words you still can run PC software that was written 15 years ago on your spanking new PIII or Athlon. That is a plus, but it has a dark side : the x86 instruction set is old. Very old, and this hampers the performance of all x86 CPU's.
And it all boils down to performance: whether it is for realistic, responsive characters and smart, well shaped monsters in your favorite 3D-game or to render your next advertising spot as fast as possible, you will always want more CPU performance.
The problem is that designing and marketing a CPU fast as greased lighting costs astronomical amounts of money. It takes the best engineers and marketing guys, ultra clean fabs, top-notch researchers…getting into CPU business requires a huge investment.
To make it worse, the profit margins in the PC-market are shrinking every day. So how can a clever CPU manufacturer get some return on investment ? Aim for the high-end server market. A company that needs a high performance server, will not start to haggle like a tourist in the Kasba, but will pay a premium price for a CPU that can handle (reliably!) the highest workloads.
Once the sales in the high-end have paid back the initial investment, the technology can trickle down to the desktop market, so that normal mortals, like you and I, can enjoy excellent performance at a decent (well, uh... that is subjective) price.
So both AMD and Intel are aiming at the high end market. Intel already has a pretty big finger in the "medium-sized" server pie, but the really big coporate servers are still powered with Alpha, SUN or HP CPU's. Intel wants to fight the big boys with the McKinley Processor, a super tweaked Itanium, alias "Merced".
AMD is still new to the server market. Dual AMD Athlon Ultras should attack the medium server market next year, giving Intel's Xeons and Cascades a hard time. But AMD is thinking ahead and want its piece of the "huge server" action.