Why AMD Shares Plunged

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What: Shares of Advanced Micro Devices (NYSE: AMD  ) have plunged today by as much as 17% after the company reported earnings last night.

So what: Revenue in the second quarter totaled $1.16 billion, which translated into an adjusted loss of $0.09 per share. Both figures were ahead of Street forecasts, which called for $1.11 billion in sales, and a loss of $0.13 per share. The real cause for concern was within guidance.

Now what: The third quarter should see revenue increase sequentially by approximately 22%, which is a healthy figure. Despite the expected top line gains, investors are concerned about profitability. AMD said gross margin next quarter should be around 36%, a significant sequential drop from the 40% gross margin just posted. Shares have already soared in recent months on optimism around next-generation game consoles, but the custom chip business is proving to be less profitable than investors were hoping for.

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