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Advanced Micro Devices Posts Double-Digit Top-Line Growth for 3Q16

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Earnings and revenue top consensus estimates

On October 20, Advanced Micro Devices (AMD) posted its second consecutive quarter of sales growth. The company generated revenue of $1.3 billion for 3Q16, indicating an increase of 23% year-over-year (or YoY). For the bottom line, the company posted adjusted EPS (earnings per share) of $0.03, up from the EPS loss of $0.17 a year ago. The 3Q16 results topped expectations. On average, Wall Street was looking for break-even EPS on revenue of $1.2 billion.

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Custom chips for video game consoles fuel gains

The chart above shows Advanced Micro Devices’ revenue trend for the last five quarters to 3Q16. The top-line gains that Advanced Micro Devices made in 3Q16 were largely supported by strong demand for its custom processors sold to Sony (SNE) and Microsoft (MSFT) for use in their gaming consoles. The company said that revenues for the segment’s division that includes custom chips for video game devices rose 31% YoY.

Zen chips for PCs and servers

Though Advanced Micro Devices is struggling with a troubled personal computer (or PC) market, the company sees a bright future for its high-end PC business. In 3Q16, the company said revenue from the computing and graphics unit rose 11% YoY as gamers showed a willingness to buy the latest high-end graphic chips.

The shrinking PC market has rattled Advanced Micro Devices and its fellow PC processor maker, Intel (INTC). However, the management of Advanced Micro Devices sees sales in the computing and graphics segment growing next year as Zen processor enters the market. Zen chips for PC will start shipping in 1Q17, while Zen for servers will be available starting in 2Q17.

Advanced Micro Devices is betting on Zen to beat rival Nvidia (NVDA) in the graphics chips market.

4Q16 outlook

Advanced Micro Devices guided for revenue in 4Q16 to fall by 15% to 21%, yet analysts on average are expecting sales in the quarter to dip only 13%.

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