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Analysts ecstatic over AMD's $226m loss in Q3

'Nice job, guys'

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You have to appreciate Wall Street's unending desire to see AMD - the ultimate underdog - succeed.

The chip maker today posted a $226m loss in the third quarter, replacing a $121m profit in the same period a year ago. In addition, executives rebuffed any requests to commit to profitability down the road. But still the analysts patted AMD on the back for a quarter well done.

Krishna Shankar of JMP Securities dished out a "congratulations on the progress." JoAnne Feeney at FTN Midwest Securities provided a "congratulations on a nice quarter." And a Lehman Brothers analyst - Timothy Luke, we believe - came out with a "nice job on the execution." One last analyst whose name we didn't catch issued a "Congratulations on a very strong performance." Were you just to splice out the analysts' back-scratching, you'd have thought AMD a miracle maker.

It would seem the analysts were fixated on their own hopes and dreams or on AMD's 23 per cent year-over-year improvement in third-quarter revenue to $1.6bn. But not even AMD's CEO Hector Ruiz was as moved by the revenue rise as the analysts with their buy ratings on AMD.

"We are very encouraged by our progress but discouraged by our financial results," Ruiz said, during a conference call.

Later, CFO Bob Rivet could muster little more than faint hope that AMD may have a decent fourth quarter. "We will see in the fourth quarter," he said. "That is our goal to break even. Maybe we even have a shot at it."

Now, that's confidence.

AMD's chip sales fell to $1.28bn in the third quarter from $1.33bn in the same period last year. The company, however, added $252m in graphics chip sales from its acquisition of ATI that did not exist in 2006. The chip group saddled AMD with a $112m loss, while the graphics guys only lost $3m.

The consumer electronics group added $97m in revenue and a $3m loss.

AMD has spent years replacing the occasional strong quarter with strings of weak ones. Some pundits, including yours truly, thought that might change once Opteron gained a strong position in corporate accounts and AMD's overall chip technology improved. Well, no such luck. AMD's delays with four-core processors have now put it well behind Intel, which brings in more in profit than AMD produces in revenue.

Lest you think AMD has totally lost the plot, Rivet did show signs of focus.

"Our goal is to make money in any given quarter," he said.

Phew.

In order to turn a profit, AMD thinks it will need $2bn or more in revenue and better than 40 per cent gross margins. (Third quarter gross margins came in at 41 per cent, as compared to 51 per cent in the same period last year.)

AMD declined to provide an exact fourth quarter revenue target but said the results should be "in line with seasonality" in the "seasonally up fourth quarter." So get out your seasonometer.

Ruiz noted that worldwide demand for PCs "is very, very strong." However constraints on plastics, displays and possibly batteries could hamper sales.

Investors appeared far less moved than the analysts by AMD's spectacular quarter. Shares were up almost one per cent at $14.55 in after-hours trading, at the time of this report. ®

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