SAN FRANCISCO Strong notebook processor sales helped Advanced Micro Devices Inc AMD.N post a narrower than expected loss and turn its core chipmaking business profitable, but the results failed to excite investors, who sold off its shares.
The stock of the chip maker -- which has posted 12 consecutive quarters of losses -- slid 5 percent as investors took profits after a 60 percent run-up over the past three months on growing hopes of a sustained recovery in the technology sector, underscored by stellar earnings from bellwether Intel Corp (INTC.O) this week.
Global chip sales posted their sixth consecutive monthly increase in August, and analysts forecast September chip sales likely rose more than 6 percent from August on holiday sales and demand related to the upcoming release of Microsoft Corp's (MSFT.O) Windows 7 operating system.
Even with the day's drop, AMD's shares are up 11 percent from the start of last week.
"There's still some skepticism out there about their ability to sustain the success," said FTN Equity Capital Markets analyst JoAnne Feeney. "But if you look carefully at the products that they're offering, and the quality is improving, they're becoming more appealing as a source for the major PC OEMS."
AMD accounted for 11.9 percent of global microprocessor revenue in the second quarter, according to industry tracker iSuppli. But Intel controls most of the remaining sales and should benefit more from any sector rebound.
It has bled market share steadily to Intel in past years. Chief Executive Dirk Meyer said in May that he expected the company's core business to make a net profit by year's end, with the PC market potentially stronger in the second half.
On Thursday, AMD said its chip-design arm eked out a net profit of $2 million.
But the company's other major division, its contract chip manufacturing or foundry operations, remained in the red.
THE OTHER HALF
This year, AMD spun off its semiconductor manufacturer Globalfoundries, effectively splitting itself into a contract chip manufacturer and a core chip design or "product" company, which since expanded to create ARM-based chips as well.
However, Globalfoundries has become an albatross for AMD's books. Analysts say Globalfoundries --in which Abu Dhabi-backed Advanced Technology Investment Co has a majority stake -- will continue to hurt AMD's profitability.
FTN Capital Markets' Feeney said Globalfoundries was basically a start-up, which will be spending billions to build capacity, such as with its recently announced manufacturing facility in New York.
Still, AMD, the perennial No. 2 to Intel, forecast fourth-quarter revenue would be "up modestly."
"At this point we're calling moderate, which is a little bit less bullish than average seasonality," Chief Executive Meyer said, referring to normal seasonal sales patterns. "We're simply looking at a global world economy that still is not all that robust by many measures."
He said that normal seasonal growth in the fourth quarter ranges between 6 percent and 9 percent from the third quarter.
Chief rival Intel forecast a sequential revenue increase of between 3.2 percent and 11.7 percent for the fourth quarter.
Before AMD's quarterly results were released, analysts had expected fourth-quarter revenue of $1.36 billion.
Shares of the Sunnyvale, California-based company were down 3.7 percent at $5.96 after closing down 1 percent at $6.19 in regular-session trading on the New York Stock Exchange.
AMD posted a net loss of $128 million, or 18 cents per share, for the third quarter, ended September 26, compared with a net loss of $134 million, or 22 cents per share, a year ago.
Analysts, on average, expected a loss of 42 cents a share, according to Thomson Reuters I/B/E/S.
Revenue plunged 21.3 percent to $1.4 billion from $1.78 billion a year ago, but came in ahead of the $1.26 billion expected by analysts.
"Now that they've achieved that, I think the incremental upside in Q4 is probably minimal and at this point, we're seeing investors lock in some of those profits," said Patrick Wang, analyst with Wedbush Morgan Securities.
(Editing by Edwin Chan, Andre Grenon, Gary Hill)