Advanced Micro Devices Inc (NYSE:AMD) posted a 6 percent decline in personal computer chip sales, dampening hopes that its fast-growing gaming-console business can take up the slack and sending its shares 7 percent lower.
AMD's third-quarter results on Thursday beat analysts' forecasts as the chipmaker benefited from supplying processors for new game consoles like Sony Corp's PlayStation 4 and Microsoft Corp's Xbox One, which go on sale in November.
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But investors had hoped for an even bigger boost, as AMD's larger core PC business continues to shrink. The company's stock, which had gained 12 percent over the past week, fell more than 7 percent to $3.81 in extended trading.
AMD has long competed against larger Intel Corp in supplying chips for PCs, but as consumers buy fewer laptops and desktop computers, the company is seeking new markets.
The stock has surged on expectations its semi-customized chips for the pair of upcoming game consoles - would make up for a slowdown in sales of PC processors and return the company to profits.
"They beat expectations but I think buyside expectations were quite a bit higher," said Bernstein analyst Stacy Rasgon. "This thing is hedge-fund hotel right now. Nobody's in it for the long term."
AMD's computing solution business, which includes PC processors, fell 6 percent in the third quarter compared to the second quarter. That compares to larger Intel's 3.5 percent increase in revenue from PC processors in the same period.
Intel is midst of launching new chips, codenamed Haswell and Bay Trail, for PCs and tablets, some of which are competing against low-cost laptops AMD has been focusing on.
"They probably lost market share to Intel," said Stifel Nicolaus analyst Kevin Cassidy. "That was a surprise. Intel's Bay Trail and Haswell are coming in on top of where AMD was."
It remains unclear how many of the new game consoles will be sold in the months following their planned release in November, as well as how profitable the chips sold for the consoles will be for AMD.
Microsoft and Sony may struggle to sell their game consoles to consumers who increasingly prefer to play games on tablets, some analysts said. Others say there is strong pent-up demand for the first new consoles in years.
AMD reported a third-quarter net profit of $48 million, or 6 cents a share, compared to a net loss of $157 million, or 21 cents a share, in the year-ago quarter.
Non-GAAP earnings of 4 cents a share beat expectations for 2 cents.
Revenue rose to $1.46 billion from $1.27 billion in the third quarter last year. Analysts on average had expected $1.416 billion, according to Thomson Reuters I/B/E/S.
AMD said fourth-quarter revenue would rise 5 percent, plus or minus 3 percent, from the September quarter. That would be about $1.533 billion.
Analysts on average had expected revenue of $1.416 billion in the third quarter and $1.508 billion in the fourth, according to Thomson Reuters I/B/E/S.
(Reporting by Noel Randewich; Editing by Carol Bishopric and Richard Chang)