For their 3Q 2010 quarterly earnings report AMD posted yet another loss in a string of many others. AMD[NYSE: AMD] reported their 3Q 2010 earnings today, and the picture was once again not pretty relative to the previous quarter but still good compared to last year. AMD reported a net loss of $118M or loss per share of $0.17. This loss was part of the $1.62B in revenue that AMD took in for the quarter, which was actually a 2% decrease quarter over quarter. Also, AMD reported a gross margin of 46% hovering around the same as the previous quarter?s 45% but beating Wall Street?s estimates of 45%.

CPU Business ASP Suffers Due to Opteron Market Share Loss
AMD?s reduced revenue is partially a result of the fact that their Computer Solutions division?s sales figures were basically flat quarter over quarter while still up 13% over the same quarter last year, considering it was the recession and all. The operating income for that division was actually $164M – which was $38M more than last quarter and double the same quarter last year.

Even though AMD saw an increase in operating income for their Computer Solutions division, their microprocessor ASP was down quarter over quarter while still being higher year over year. This is likely attributable to the fact that AMD was sacrificing price in order to gain placement with OEMs like HP. This could possibly help AMD?s position in the market as it may increase their market share and give them more exposure to the consumers. If AMD can deliver good value to their consumers, which they are for the most part, then they stand the chance of being able to produce more chips at higher ASPs and possibly eek out a net income for 4Q 2010. Whatever AMD is doing in their Computer Solutions division, they need to keep doing it… because even though their revenue was effectively flat they managed to significantly increase operating income. The loss of Opteron sales is also a large factor in the decrease in ASP.

Evergreen GPU Architecture Fails to bring Green…backs
The picture for the Graphics division of AMD isn?t as good as the Computer Solutions? nor does it look as good compared to last quarter. Their graphics revenue decreased 11% quarter over quarter, but was still up 33% compared to the same quarter a year ago. This was mostly due in part to the fact that AMD had a decrease in both shipments and ASP of those GPUs. Operating income was down to $1M from $33M in 2Q 2010. This is somewhat alarming as this reflects a 97% decrease in operating income for the division. This may be due in part to the fact that nVidia finally began to ramp up their Fermi product offerings as well as their mid-range offerings most notably the GeForce GTX 460. This drove AMD to cut prices and actually triggered somewhat of a price war between the two companies with each lowering their prices to undercut the other. The consumer typically benefits the most out of these kinds of situations.

AMD’s Profit – So Close, but GlobalFoundries keeps it so far.
If it weren?t for the $56M in interest that AMD has to pay on borrowing and the $186M in equity losses attributable to GlobalFoundries, AMD would have easily turned a profit. The simple thing is that at this current point, we would consider AMD to be doing things right and they just have to sort out their investments and debts. Once they accomplish that, their GAAP will reflect their non-GAAP earnings. Currently, though, AMD is reporting a loss of $118M using GAAP and a profit of $108M using non-GAAP.

They also need to boost their GPU division significantly and sell more professional cards with higher ASPs along with mobile consumer products. This is likely to happen once they release their new AMD Barts and Cayman GPUs in a few days with Antilles coming later. In fact, today AMD had its event for selected press in Los Angeles, CA.

The outlook for AMD is yet again a cautiously optimistic one hoping that AMD will improve their profitability to the point where they can actually post a net income instead of a net loss. If AMD can bring back the fire that they had in their GPU division in 2Q 2010, then we do expect AMD to be able to pull out a profit in 4Q 2010, if they cannot improve their GPU ASP and sales with the new series of AMD Radeon products and more importantly, get their share in professional GPU segment with AMD FirePro series. They expect to reduce their interest payments down to $48M from $56M which should improve their overall net income around $8M which is a good sign. AMD did not mention any projections for revenue or net income, but rather variables that they believe that they can accurately predict.

Profit finally coming in Fourth Quarter 2010?
As such, we believe that AMD is cautious with their statements but we do believe that they will be able to post a 4Q 2010 profit if they do not take another equity hit from GlobalFoundries. This is merely a way of accounting and as far as we?re concerned, AMD effectively posted a profit this quarter even though following GAAP they did not. AMD should see an increase in both GPU and CPU revenue with the holiday season and potentially an increase in GPU ASPs with the new series of Radeon cards which should lead to an increase of around 3-4% of revenue and drive AMD into a profitable quarter.