AMD Beats Earnings Estimates, But Q4 Outlook Flat

The good news is, AMD inched closer to profitability with a surprisingly strong third quarter. The bad news is, the chip maker’s fourth quarter outlook is flat.

AMD reported third quarter revenue of $1.62 billion, up 16 percent from one year ago. Excluding one-time charges such as those related to AMD’s sale of GloabFoundries, the company reported non-GAAP earnings of $108 million or 15 cents a share, which blew away Wall Street’s consensus estimate of 6 cents a share. Overall, under GAAP rules the chip maker took a net loss of $118 million or 17 cents per share.

Other good news for AMD: its gross margin increased to almost 46 percent, up approximately four percent from one year ago. And the chip maker, which had long run a costly business of manufacturing its own chips, took the last charge related to the GlobalFoundries sale.

While the company’s third quarter earnings were better than expected, AMD’s outlook for the fourth quarter was disappointing in that it expects sales to be flat.

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Dirk Meyer, AMD’s CEO, said on the earnings conference call that weakened consumer spending, particularly in North America and Western Europe, led to excess inventory in the third quarter. Meyer said that after two strong quarters for the PC industry, most OEMs were planning on continued explosive growth for the rest of 2010, but demand was dampened by economic uncertainty. ’We still do see positive sequential growth for PC consumption,’ he said.

Next: AMD Talks Graphics, Fusion Chips

Meyer also said the company experienced some weaker demand in the third quarter around its mobile graphics products for notebooks and netbooks, along with decreased average selling prices. As a result, AMD’s graphics revenue fell 11 percent. But Meyer pointed out that the weakness again was primarily in the consumer space and not in the channel. ’From our standpoint,’ he said, ’the component distribution channel seems relatively okay.’

Despite a decline in its graphics revenue, Meyer painted a positive picture for AMD’s GPU business. Specifically, Meyer said his company has shipped more than 25 million DirectX 11-capable graphics cards since the launch of its 5800 series line in September of 2009. The company also touted the inclusion of its graphics cards on Apple’s refreshed iMac and Mac Pro desktops.

But the real keys for AMD, according to Meyer, will be the forthcoming line of processors, dubbed Fusion, which will combine CPU and GPU technology on a single chip. The company said it expects to ship its first Fusion release sometime in the fourth quarter.

’Our business model is solid,’ Meyer said. ’Our AMD Fusion strategy is changing the industry.’