Advanced Micro Devices chief executive Lisa Su said in an analyst conference call today that the company missed its third-quarter earnings targets because of weak consumer PC sales.

AMD CEO Lisa Su

Above: AMD CEO Lisa Su

Image Credit: AMD

“While our enterprise, embedded, and semi-custom chips had a good quarter, we did face challenges in computing and graphics due to ongoing weakness in the consumer PC market,” Su said. “We know what we need to do to improve results, and we are taking the appropriate actions.”

Among the actions was a 7 percent reduction in AMD’s headcount.

AMD’s earnings are closely watched as a bellwether for low-cost computers, as the company is the No. 2 maker of PC microprocessors, and it is also one of the “big two” graphics chip makers for PCs. The company has been trying to adapt to the shift toward mobile by creating alternative chips in custom markets where Intel, its giant rival, doesn’t play.

“Our performance in the component and graphics channel was weak,” Su said. “We saw sellout momentum slow, particularly in China.” That led to distributors beomcing more cautious in stocking inventories of processor and graphics chips.

AMD reported net income of 3 cents a share on revenue of $1.43 billion, down 2 percent from a year ago. Analysts were expecting earnings of 4 cents per share before special items and $1.47 billion in revenue. In the third quarter a year ago, AMD reported earnings of 4 cents a share and revenue of $1.46 billion. Analysts had previously estimated that fourth-quarter earnings per share would be 5 cents and revenue would be $1.48 billion.

The stock fell more than 8 percent in after-hours trading, but it bounced back to $2.51 a share, down 5 percent from the close.

Embedded processor revenue grew, and the company won a variety of new customers like Arista, which bought chips for switches for cloud networking. Enterprise and semi-custom chip (such as game console processor) sales were up from a year ago. The third quarter was a record month for the shipment of game console chips, as Microsoft and Sony loaded up on in advance of shipping systems for the holiday season.

Su said AMD had achieved two new semi-custom chip customers. These could generate $1 billion in revenues over three years, with the first revenues arriving in 2016, she said.

“It’s important to note we are diversifying our semi-custom business beyond gaming,” Su said.

Su said the company is optimistic as well about creating ARM-based server chips for the enterprise, another area where it hopes to offer high-performance, low-power chips to contend with Intel’s faster-but-power-hungry server chips. AMD is expecting ARM-based server system launches next year.

Earlier this month, AMD appointed Su as its new chief executive in a surprise change, replacing Rory Read, who had been on the job for three years.

On Oct. 8, Rory Read, 52, stepped down as CEO. Su, 44, was the No. 2 executive, or chief operating officer, under Read. She is the newest female top executive at a major tech company, and she is the first female CEO at 45-year-old AMD.

But she faces a tough challenge. Intel’s executives believe that they gained market share in the third quarter against AMD, who is the perennial runner-up to Intel in the PC microprocessor business. But the chipmaker has branched out to dominate some sectors, such as processors for video game consoles like the new PlayStation 4 or Xbox One. Since 2012, AMD has cut its operating costs by 30 percent and kept its cash at about $1 billion. It has also cut back on staff and focused its chip-design efforts. In an interview with VentureBeat, Su said her company won’t walk in Intel’s shadow.

Read joined AMD three years ago after leaving the No. 2 job at one of AMD’s biggest customers, Lenovo. He hired Su in 2012 and appointed her the head of various business units. More recently, she was appointed chief operating officer responsible for AMD’s business units, sales, global operations, and infrastructure enablement teams.

AMD has about $2.2 billion in debt. The company said it plans to reduce headcount by 7 percent by the end of the year as part of a restructuring that will result in a charge of $57 million. The company will also realign its real-estate holdings as well.

For the fourth quarter, Su expects revenue to decrease 13 percent from the $1.43 billion in the third quarter. AMD chief financial officer Devinder Kumar said it expects a weak consumer PC environment and lower semi-custom chip revenue. The latter means that the company’s sales of chips for game consoles — the PlayStation 4 and the Xbox One — are going down in the wake of the launch in 2013.

AMD is now a bellwether for the game console market as well, as its chips are in Sony, Nintendo, and Microsoft game machines. The question there is how much the market will slow down in the wake of the 2013 console launch and increasing competition from mobile and tablet games as well as other devices, such as Amazon’s Fire TV set-top box.

“I firmly we are on of the few companies with the market position and capabilities to deliver world-class technologies and great products that will lead the industry forward,” Su said.

She said the company is going through a multiyear transformation, but she believes the strategy is a sound one.