Shipments of graphics chips edged higher in the third quarter of 2006, with semiconductor firm Nvidia (NASDQ: NVDA) gaining market share from rivals.

Nearly 76 million PC graphics devices shipped in the third quarter, an increase of 5.2 percent from the previous quarter and an 11.3 percent increase compared to the same period last year, according to Jon Peddie Research. Growth was driven by strong sales in mobile and desktop graphics with Nvidia gaining in both categories compared to its main competitors.

The desktop graphics segment saw shipments increase 2 percent from the second quarter of 2006, while shipments increased 4.7 percent for the year. Nvidia's market share in the category grew one percent to 25 percent compared to the previous quarter, while rival ATI Technologies dropped from 26 percent in the second quarter, to 24 in the third. Intel maintained its 35 percent share.

The mobile graphics segment saw quarterly shipments rise a dramatic 13.8 percent, Peddie reports, growing 30.2 percent year-over year. Intel slipped three percent from the previous quarter, capturing 51 percent of the market. ATI dropped 7 percent to a 24 percent share, while Nvidia jumped 8 percent in market share to 19 percent for the quarter.

Earlier this year, ATI was acquired by semi-conductor firm, Advanced Micro Devices (NYSE: AMD) for $5.4 billion.

Overall, Intel maintained 40 percent of the graphics market for the third quarter, while Nvidia jumped to 22 percent, up from 20 percent the previous quarter. ATI dropped to 23 percent, down from 28 percent from the second quarter. Smaller competitors comprised the remaining 17 percent.

Graphics chips are used to generate 2D and 3D images in devices ranging from cell-phones, to complex computing systems.

Shares of Nvidia slipped 8 cents, or 0.22 percent, to $36.52 in mid-day trading on the Nasdaq exchange.

Electronics Intel