AMD Q3: Beats expectations, returns to profitability

Summary:AMD's graphics and gaming unit carried the quarter, which saw the chipmaker return to profitability, while PC and notebook sales continued to dwindle.

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AMD headquarters in Sunnyvale, California Image: Wikimedia Commons

AMD's fiscal third quarter results saw the chipmaker return to profitability after a series of abysmal results over the past year. 

The company reported third quarter revenue of $1.46 million, a 15 percent year-over-year increase, and net income of $48 million, or 4 cents a share (statement). 

On a non-GAAP basis, the company had net income of $31 million. That figure also includes $22 million in restructuring charges. Had AMD not taken that hit, it would have seen its earnings per share stand at 6 cents.

Wall Street was expecting AMD to report third quarter earnings of 2 cents a share on revenue of $1.41 billion.

AMD chief executive Rory Read cited the company's turnaround as part of its strategic transformation plan outlined a year ago. He added, in prepared remarks:

"We achieved 26 percent sequential revenue growth driven by our semi-custom business and remain committed to generating approximately 50 percent of revenue from high-growth markets over the next two years. Developing industry-leading technology remains at our core, and we are in the middle of a multi-year journey to redefine AMD as a leader across a more diverse set of growth markets."

Gross margin was 36 percent in the third quarter, but decreased from the second quarter. Meanwhile, AMD's cash and equivalents stood at $1.2 billion at the end of the quarter, which was higher than its expected target.

AMD said despite its return to profit, its Computing Solutions segment suffered 6 percent on the previous quarter, and 15 percent year-over-year. This was attributed this to the decreased notebook and chipset unit shipments, but was partially offset by an increase in desktop shipments.

Its Graphics and Visual Solutions unit, which creates graphical processors and custom products, including game console royalties, increased by 110 percent on the previous quarter, and 96 percent year-over-year, thanks to its semi-custom products business.

Troubled times in the chip world

AMD has always been the underdog to Intel for years. The European Union accused the world's biggest chipmaker of blocking AMD by way of anticompetitive behavior, including making direct payments to manufacturers in a bid to delay or cancel product launches that include AMD chip.

Intel appealed the €1.06 billion ($1.4bn) fine to Europe's second highest court, based in Luxembourg.

In spite of this, AMD is mostly at the whim of the PC market. While Intel has been branching out into tablets and smartphones, AMD is on the most part out of the picture, instead relegated to the niche desktop and laptop market.

With the PC market in freefall, the company has struggled to maintain momentum. 

Last November, AMD, refuting earlier claims it would  put itself up on the market , announced plans to sell its Austin, Texas-based offices . The following January, ratings agency Standard & Poor cut AMD's credit rating to reflect its "vulnerable" business risk profile . The firm also warned AMD's revenue and earnings may further decline.

However, earlier this year, Apple announced the revamped Mac Pro, with a brand new design and breathtaking specifications. AMD graphics technology is included in the new high-performance desktop machine, which may help to offset what the company has lost in the PC space. 

Fourth-quarter outlook

Looking ahead, AMD said it expects revenue to increase between 2 percent and 5 percent on the fourth quarter. The company expects its gross margin to slip by 1 percentage point to 35 percent.

The chipmaker ($AMD) closed up slightly to $4.10 per share on the New York Stock Exchange at market close. In after-hours trading, it was down more than 7 percent.

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$AMD shares on Thursday, including after-hours trading Image: Google Finance

Topics: Hardware, Processors

About

Zack Whittaker writes for ZDNet, CNET, and CBS News. He is based in New York City.

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