The chips that make up the inside of an x86-based computer are changing. The traditional roles of the processor, chipset and graphics chip are blurring as functions change and new roles are created.

Advanced Micro Devices has led many of these changes and is counting on future changes to gain an advantage over the competition.

AMD was the first to combine the memory controller -- traditionally part of the chipset -- with the processor, which helped boost performance by reducing latency on the chip. AMD also beat Intel to be the first with a dual-core x86 processor. These advances helped AMD gain market share, but the company later stumbled badly with the delayed release of its quad-core Opteron chips and has yet to fully recover.

AMD isn't the only company that's rethinking how the inside of a PC should look. Intel also embraced multi-core processors and will combine the memory controller with the processor in its upcoming line of Nehalem chips, due later this year. Intel is also developing its own graphics processor, called Larabee. And Nvidia, which has a line of powerful graphics processors and chipsets, is eyeing a greater processor role for these chips inside the PC.

"The whole industry is going to heterogenous cores, the concept that you have different kinds of cores that do different types of stuff," said Patrick Moorhead, vice president of advanced marketing at Advanced Micro Devices, in an interview.

That means graphics chips -- which have dozens of cores able to process operations simultaneously, or in parallel -- will take on some functions handled by the CPU, and vice versa. "You have stuff that does really well when it's massively parallelized and you have stuff that does really, really well when it's more of a serial operation," Moorhead said.

"We see a world where both of them (the CPU and graphics chip) matter, and that's part of why we acquired ATI," he said.

Despite writing down a big chunk of goodwill from that acquisition -- effectively an admission it paid too much for ATI -- AMD is counting on ATI's graphics technology to gain an edge over Intel. This project, called Fusion, will add graphics cores to the same piece of silicon that already holds the CPU cores and memory controller, a design change that should reduce latency and lower power consumption.

The first Fusion chips are slated to arrive late next year.

AMD hopes to tap the rising performance of graphics chips, which are growing at a faster rate than CPU performance, Moorhead said. But hardware is just one part of a much bigger picture. Software applications will have to be rewritten to tap the full potential of multiple CPU cores and the parallel computing power of graphics cores.

"With our accelerated computing stuff, we're trying to put a layer in there to shield as best we can the developer from some of those complexities," Moorhead said. "Software doesn't move as quickly as hardware, so you've got to start with hardware."

Software designed for scientific research and industries like oil exploration and life sciences will be the first to unlock this potential because it's "economically feasible to write closer to the hardware," Moorhead said.

"A lot of these high-end usage models start in high-performance computing and make their way down into the mainstream," he said.

This transition will happen more slowly for consumers. The first application to take advantage of the changing PC architecture is video encoding, which can be handled by the graphics processor instead of relying on the CPU cores, Moorhead said, adding that more applications will come.

"It takes time, but you have to start somewhere," he said.