Advanced Micro Devices Inc. (AMD:US) fell as much as 8.3 percent after forecasting fourth-quarter sales that may trail estimates, as a focus on orders for game-console chips failed to make up for a slump in personal-computer demand.
Revenue will rise by 5 percent, plus or minus 3 percentage points, from the third quarter’s $1.46 billion, the company said yesterday in a statement. That indicates fourth-quarter sales of as little as $1.49 billion, while analysts on average (AMD:US) projected $1.52 billion, according to data compiled by Bloomberg.
Chief Executive Officer Rory Read is trying to recast AMD as a maker of custom chips that bundle graphics and other capabilities. While that strategy has won orders from Microsoft Corp., Sony Corp. and Nintendo Co. in video-game machines, most of AMD’s revenue comes from PCs, a shrinking market where Intel Corp. (INTC:US) has rolled out cheaper products to grab share.
“Intel is obviously taking share at the low end,” said Ada Menaker, an analyst at Stamford, Connecticut-based MKM Partners. She has the equivalent of a hold rating (AMD:US) on AMD stock.
AMD’s stock (AMD:US), which had risen 70 percent this year on optimism that its console business would take off, slid as low as $3.75 in extended trading following the announcement. The shares were unchanged at $4.09 at the close in New York.
On a conference call yesterday, Read said he expects total PC market shipments to drop 10 percent this year and another 10 percent in 2014. Researcher IDC predicts a decline of 9.7 percent this year. AMD relies too much on consumer laptops, Read said, which are being hurt the most by a shift to tablets.
Third-quarter net (AMD:US) income was $48 million, or 6 cents a share, compared with a loss in the year-ago period, Sunnyvale, California-based AMD said. Sales rose 15 percent, the first quarterly increase from a year earlier since 2011. Excluding certain costs, AMD had profit of 4 cents a share. On that basis, analysts on average had estimated (AMD:US) profit of 2 cents on sales of $1.42 billion.
Worldwide PC shipments fell 8.6 percent in the third quarter, the sixth consecutive drop, market researcher Gartner Inc. said last week. AMD’s computing-solutions business had sales of $790 million in the third quarter, a decline of 15 percent from a year earlier.
The third quarter historically has been the strongest period of the year for PC-processor demand as computer makers stock up on chips ahead of the holiday shopping season. Yet AMD’s PC division sales were 6.1 percent lower than the unit’s revenue in the second quarter. By comparison, Intel’s PC-chip unit sales (INTC:US) increased 3.5 percent in the third quarter from the previous three months.
AMD said gross margin (AMD:US), the percentage of sales remaining after deducting production costs, will be about 35 percent in the current period. That’s narrower than the third quarter’s 36 percent and compares with an average analyst estimate of 35.6 percent.
The company competes with Intel in processors and graphics chips, and with Nvidia Corp. (NVDA:US) in the market for graphics chips that are used in add-in cards for more powerful gaming computers.
AMD provides processors for less than 20 percent of PCs shipped, according to researcher IDC, with most of the balance supplied by Intel. In graphics, AMD has about a third of the market, behind Nvidia.
Intel, which reported earnings earlier this week, said its PC-chip group had third-quarter sales of $8.4 billion, down 3.5 percent from a year earlier. Intel has begun selling more powerful, cheaper chips designed for low-cost notebooks, an area where AMD had stronger market share than it did in the broader market.
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