Good thing it is coming out of the ATI wing then
Outside of R600 and the troubles ATI had with the R520 bug, ATI has competed well in the market. Since R300 ATI has had the R420 which was a solid performer with good IQ, the biggest problems being XT PE availability and how the midrange (
X1700) didn't fair as well against the competition (NV 6600GT). R520 had the afformentioned bug, but R580 was a really nice part for ATI in terms of performance and features. The midrange, again, is an area that seems to have been slightly misgauged. And in this same timeframe there was Xenos which performs well, is making ATI money (at the cost of more PC resources, ala NV2A???) which punctuates the question: Were the whispers in ATI that R580 should have been unified the correct move? NV really did steal ATI's thunder there.
Anyhow, ATI has been competitive in the GPU space for quite a while now. R600 has been a mess for sure and until recently midrange GPUs didn't get the proper TLC they deserved (in my opinion).
Outside of potential R&D cutbacks and key defections I think ATI has proven they can develop strong technologies that compete in the market. Obviously they have their work cut out for them (multi-GPU systems still seem to have issues on both sides of the fence, the Havok buyout really puts a damper on ATI, devrel still seems to be a major weak spot at ATI, will they be able to push out competitive parts in the midrange and retake the performance crown... and start generating better margins, etc) but I wouldn't count ATI out completely at this point.