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AMD posts profit on Intel settlement

Chipmaker's earnings, largely attributable to a massive settlement with its chief rival, beat analyst expectations.

Brooke Crothers Former CNET contributor
Brooke Crothers writes about mobile computer systems, including laptops, tablets, smartphones: how they define the computing experience and the hardware that makes them tick. He has served as an editor at large at CNET News and a contributing reporter to The New York Times' Bits and Technology sections. His interest in things small began when living in Tokyo in a very small apartment for a very long time.
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Brooke Crothers
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Advanced Micro Devices posted a fourth-quarter profit of $1.18 billion, its first profit in three years, largely due to a massive settlement with Intel.

The $1.178 billion profit, or $1.52 per share, beat the analyst consensus estimate that had projected AMD to record a loss of 18 cents per share. In the same quarter last year, AMD lost $1.4 billion, or $2.36 per share.

The second largest global supplier of processors for PCs posted revenue of $1.646 billion, an increase of 42 percent compared with the same period a year ago. This beat analyst revenue estimates, which were pegged at $1.5 billion.

Fourth-quarter AMD gross margin, an important indicator of profit, was 45 percent, compared with 42 percent in the prior quarter and 23 percent in the year-earlier period.

AMD stated that the "favorable impacts" on its net income were primarily from a legal settlement with Intel. During the quarter, Intel and AMD announced a comprehensive agreement to end all outstanding legal disputes. As a result of this agreement, Intel paid AMD $1.25 billion.

AMD said it expects revenue to be down seasonally for the first quarter of 2010.

Chief executive Dirk Meyer, who spoke during the company's earnings conference call on Thursday, sees the PC market growing in "low double digits"--between 10 and 12 percent--in 2010.

And in 2010 the erstwhile chipmaker will put more distance between itself and its former manufacturing operation, which was spun off in 2008 and became Globalfoundries. "We have deconsolidated Globalfoundries starting in Q1. Moving forward, you will see us report AMD results only," the company said in a statement. Globalfoundries will appear only as an equity investment in future AMD financial statements.

Notebooks a target as graphics chips surge
Laptops are a big target market for AMD in 2010, according to Meyer. "We're under-penetrated in that category of product," he said. "The broad (notebook) category represents an opportunity for us this year," he said.

AMD laptop processors are expected to become more competitive as the company moves most of its chips to a more advanced 45-nanometer manufacturing process. Intel, meanwhile, is in the process of transitioning to an industry-leading 32-nanometer manufacturing process.

The company shipped a record number of mobile "discrete" (standalone) graphics processing units (GPUs) in the quarter. And overall revenue in the graphics chip segment was $427 million, a 40 percent sequential increase and a 58 percent year-to-year jump.

AMD could have shipped more GPUs but supply from its manufacturing partner Taiwan Semiconductor Manufacturing Company was "heavily constrained," Meyer said. In particular, AMD's new Radeon 5000 series of graphics processors have been well-received in the market.

Updated at 4 p.m. PST throughout.