AMD beats earnings targets as game console revenue kicks in

Advanced Micro Devices has the next generation of home video game consoles to thanks for the good news in its earning report.

AMD reported financial results today that slightly beat Wall Street’s expectations for the third quarter ended Sept. 30. The Sunnyvale, Calif.-based AMD, a bellwether for PC sales as the second-largest maker of computer microprocessors, said today that its earnings were 4 cents a share and revenues were $1.46 billion. One of the things that helped this quarter was AMD started shipping large volumes of chips for video game consoles that are debuting this fall: the Sony PlayStation 4 and the Microsoft Xbox One.

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AMD shares down about 5 percent to $3.88 a share in after-hours trading, possibly because of a weaker-than-expected forecast for the fourth quarter.

“AMD returned to profitability and generated free cash flow in the third quarter as we continued to successfully execute the strategic transformation plan we outlined a year ago,” said Rory Read, AMD’s president and CEO, in a statement. “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.”

In the previous second quarter, revenues came in at $1.11 billion. Last quarter, the chip maker’s net loss per share (after one-time items) was 9 cents a share. Analysts had expected a profit of 2 cents a share on revenue of $1.42 billion.

The Sunnyvale, Calif.-based AMD, the No. 2 maker of PC microprocessors, has had a tough couple of years as it trailed Intel in competitiveness and saw a slowdown in demand as consumers began to favor tablets and smartphones over PCs. Since it wasn’t well positioned for that transition, the slowdown hit AMD harder than Intel. But AMD has a lock on the video game console business, with its chips designed into next-generation machines from Sony and Microsoft (and Nintendo’s Wii U as well).

That console monopoly could provide AMD with steady revenues as it tries to compete against Intel in a variety of areas. AMD has also put a lot more focus into micro-servers and is creating chips based on the ARM low-power chip design architecture.

Still, AMD is dependent on PCs, which have struggled, as it gets about 80 percent of its revenue from the PC industry. Read joined the company in 2011. He was formerly the No. 2 executive at Lenovo, which has since been battling HP for the title of the world’s biggest PC maker.

AMD itself said it had expected third quarter revenue to increase 22 percent sequentially, plus or minus 3 percentage points. For the fourth quarter, AMD now says that its revenue will increase 5 percent from the third quarter. That appears to be less than what analysts were anticipating for Q4.