Today, AMD posted their earnings from the third quarter of 2013, 3Q 2013. The company had been stating for many successive quarters that they expected to return to profitability shortly, and today was that day. AMD posted a profit of $48 million on $1.46 billion in revenue. This represents an increase of over $100 million over the previous quarter, where AMD lost $74 million on $1.16 billion in revenue. However, AMD did see their gross margin shrink as a result of their revenue growing $300 million in a single quarter. As such, AMD’s gross margin went down from 40% to 36%, rarely a good sign, unless you’re AMD and you are struggling to turn a profit. Adjusted EBITDA was $153 million, up $99 million from the prior quarter.

When you look at AMD’s business segments to see where the changes were visible, you obviously first want to look at their computing solutions division, which actually saw a shrinkage of 6%. Their graphics and visual solutions business unit saw revenues of $671 million, up 110% over the prior quarter, driven by AMD’s semi-custom busness which include Sony’s and Microsoft’s next generation consoles. AMD’s GPU sales were actually down which was a result of customers beginning to switch to newer products and lower ASPs. However, AMD did see record revenues in their professional graphics division, which is important for any graphics vendor to have if they want to be profitable.

One of AMD’s biggest weaknesses as of late has been cash flow. Currently, AMD was able to generate $21 million in net cash provided by operations and the Non-GAAP free cash flow was a positive $6 million. However, cash expenditures were $15 million in the 3Q 2013. 

AMD also posted their expectations for the 4Q 2013 on their CFO commentary and it looks like AMD will continue to see revenue growth. However, they stated that they expect to see an increase of revenue of approximately 5%, which would bring down the non-GAAP gross margin to 35%. Even lower than the current quarter.

Overall, AMD looks to be improving as a company overall, but their CPU and GPU businesses still lack the luster they need for AMD to be considered on a comeback. Sure they posted a profit, but that profit only exists because of the company’s console design wins. Once 4Q 2013 rolls by, the volume and value of those console design wins will cease to have an impact on earnings. AMD still needs to get their act together, and that goes for a lot of different people within the company. After all, investors didn’t punish AMD with a drop of more than 6% because they were happy with the current situation. Something needs to change, but I can’t quite put my finger on it yet.