AMD reports big jump in revenue, but investors aren't impressed

Revenue jumped 23 percent in the third quarter.

Posted October 20th, 2016

By nearly every measure, Advanced Micro Devices had a good third quarter.

Its revenue increased 23 percent year-over-year to $1.3 billion, driven by strong demand for AMD chips used in video game consoles and sales of its graphics processors.

The chipmaker reported a loss of $406 million, which equates to a loss of 50 cents per share. When adjusted for non-recurring costs and stock option expenses, the company reported a profit of $27 million, or 3 cents a share, better than analysts were expecting, according to Zacks Investment Research. 

Advanced Micro Devices CEO Lisa Su said the results "highlight the progress we are making across our business," and said AMD now expects to deliver "higher 2016 annual revenue based on stronger demand" for its semi-custom chips used in video game consoles and its new family of graphics processors called Polaris.

The last time the company reported an adjusted profit was two years ago.  

Advanced Micro Devices is trying to diversify its business given the overall decline in the PC business. AMD makes chips that provide computing and graphics power to computers, video game consoles and servers.

But it has significantly lower market share than its main rivals, Intel Corp. and Nvidia Corp. 

AMD also said Thursday it expects revenue to increase 6 percent year-over-year in 2016, which is better than the company had previously predicted. 

But Wall Street investors weren't impressed, with AMD shares declining about 5 percent in after-hours trading on Thursday. 

That could be because AMD said its sales in the fourth quarter might decline about 18 percent, largely because of seasonal shifts in sales for its semi-custom chips used in video game consoles. 

Industry analyst Patrick Moorhead suggests that it's simply investors locking in their profits and selling after a run-up in share prices over the past six months. AMD's share price has more than doubled since the start of the year. On Thursday shares closed at $6.96, up nearly 3 percent for the day. 

Su said in a conference call with analysts that revenue from the AMD division that makes semi-custom chips for video game consoles was up 31 percent from a year ago, driven by new products powering the Xbox One S, the updated PlayStation 4 and a new design win for the Sony Playstation4 Pro. 

"The game console business is doing quite well," Su said. Nintendo, which on Thursday announced its "Switch," console, is planning to use Nvidia chips rather than AMD's, which has been rumored for months

Many analysts say what could really determine AMD's future is its new "Zen" architecture for its processors, which will be installed in computers and servers at the beginning of 2017, Su said. 

Zen is expected to be AMD's "best shot" at challenging Intel with high-end and mid-range computing processors, said Moorhead, who runs Austin-based Moor Insights and Strategy. 

"It's now up to AMD to flawlessly execute a successful launch to set themselves up for a good 2017," he sad. 

Advanced Micro Devices is one of the biggest private employers in Central Texas. Though headquartered in Sunnyvale, Calif., the chipmaker's senior executives mostly live and work in Austin. 

The company employs roughly 1,500 people in the Central Texas area.

The Associated Press contributed to this report.