Update: AMD’s Q3 led by strong Opteron, Athlon 64 sales

As expected, Advanced Micro Devices Inc.’s (AMD’s) third-quarter revenue came in a little under the company’s earlier predictions, but strong increases in sales of its 64-bit desktop and server processors led to the company’s fourth straight profitable quarter.

AMD reported $1.24 billion in sales for the third quarter, in line with the updated guidance it provided earlier this week. The Sunnyvale, California, company had originally expected to exceed the $1.26 billion in sales it recorded in the second quarter of this year, but weaker demand for its flash memory products hurt third-quarter sales, AMD said Tuesday.

Flash memory sales to mobile phone vendors in China were hurt by government intervention in that fast moving economy, said AMD Chairman, President, and Chief Executive Officer Hector Ruiz, on a conference call Thursday. Those problems started to improve by the end of the quarter, boding well for the fourth quarter, but the turnaround was not in time to have an effect on third-quarter sales, he said.

Still, net sales improved by 30 percent compared to the third quarter of 2003, the company said in a release. This was largely driven by a 34 percent gain in sales within AMD’s Computation Products Group, which makes its 64-bit Opteron and Athlon 64 processors. Those processors now account for over one-third of AMD’s sales, the company said.

By the end of the year, the eighth-generation processors based on the AMD64 instruction set will make up 50 percent of all processor shipments, Ruiz said. Conversely, AMD’s Athlon XP processors are headed for oblivion by the first quarter of 2005. That processor has been squeezed by the growth of the Athlon 64 chips at the high end and AMD’s new Sempron value processors on the low end, he said.

Third-quarter net income was $44 million, up sharply from the $31 million net loss AMD recorded in the third quarter of 2003. The strong sales growth in the processor division coupled with improved margins within AMD’s flash memory business helped AMD record its highest profit in several quarters. Earnings per share were $0.12, in line with analyst estimates.

The flash memory division’s profits improved as AMD completed a transition to the 110 nanometer process technology for its flash memory manufacturing group, said Robert Rivet, AMD’s chief financial officer, on the conference call.

Industry analysts are concerned about the PC market heading into the fourth-quarter, but AMD expects fourth-quarter processor sales to exceed seasonal trends, it said. The fourth quarter is almost always the strongest quarter of the year for PC and chip companies.

Ruiz believes that AMD is breaking away from the usual pattern of seasonal expectations as its new processors gain traction in the marketplace. AMD has plenty of room to grow, even within a challenging market, as it tries to chip away at Intel Corp.’s commanding lead in several microprocessor categories, Ruiz said, without specifically mentioning Intel.

Evidence of that growth can be seen in the growing number of enterprise customers in AMD’s portfolio, Ruiz said. A company that once catered mainly to enthusiast gamers can now count companies like Merrill Lynch & Co. Inc. and Sabre Holdings Corp. among its Opteron customers, AMD said in its release.

Intel reports third-quarter earnings next week. In September, the company slashed expectations for third-quarter revenue amid what it called a weaker market than it had predicted going into the quarter.