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Like Intel (Nasdaq: INTC ) before it, Advanced Micro Devices (NYSE: AMD ) reported a soft consumer market in the third quarter, but pretty strong business overall. Unlike Intel, AMD is on the verge of pushing out brand-new products in several operating segments, which makes me inclined to forgive its modest inventory buildup.
AMD's revenue came in at $1.62 billion, a 2% sequential drop that lands in the upper half of updated guidance. On the bottom line, non-GAAP earnings exploded from breakeven a year ago, and $0.11 per share last quarter, to $0.15 per share this time around. That would have been a positive surprise before everyone lowered their targets on AMD's revenue warning. Even in a bleak environment, AMD is finally a dependable profit-maker again after a few years in the poorhouse.
One quick accounting note: Like most of my colleagues, I tend to prefer GAAP numbers over the more malleable and manipulation-prone non-GAAP figures. In this case, the negative contributions from a couple of decidedly non-core items made a big difference, and I think it's more fair to consider AMD's operations without them:
- Early payment fees on a bushel of refinanced debt added up to $24 million.
- The Globalfoundries chip manufacturing arm, which has been spun off to deep-pocketed investors and now aims to take on market leader Taiwan Semiconductor Manufacturing (NYSE: TSM ) on its own, inflicted a $186 million non-cash charge on AMD.
The company is considering the "appropriateness" of its current equity method of accounting for Globalfoundries, and I wouldn't be shocked to see a change in coming quarters. I'm happy to treat Globalfoundries as a "discontinued operation" for all intents and purposes.
AMD is gearing up to release a new graphics lineup next week, and the first Fusion products later in the quarter. There's some debate about whether NVIDIA (Nasdaq: NVDA ) is taking market share from AMD in the graphics market, but next week's launch should settle that score for a while.
Analyst opinions on AMD range from a low target price of $5 to $13 per share, including the $12 target set by Gleacher analyst Doug Freedman, who justifies that lofty valuation with predictions of a banner year for the company in 2011. Me, I'm sticking to my $10 price estimate, which still makes the stock a cheap buy today. What we just saw is pretty close to what I expected out of AMD's third quarter.
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