Oct. 18 (Bloomberg) -- Advanced Micro Devices Inc., the second-largest maker of personal-computer processors, posted a smaller loss than analysts anticipated after demand for laptops boosted sales.

The third-quarter net loss was $396 million, or 71 cents a share, compared with a profit of $136 million, or 27 cents, a year earlier, the Sunnyvale, California-based company said today in a statement. Sales rose 23 percent to $1.63 billion, beating the $1.52 billion average estimate in a Bloomberg survey.

Revenue from notebook PC processors reached a record in the quarter, rising 43 percent, Chief Financial Officer Robert Rivet said on a conference call. Rival Intel Corp. this week said its profit rose on global demand for PCs, raising expectations that Advanced Micro would report higher sales.

``Given they're bleeding cash, the numbers are actually pretty good,'' said Doug Freedman, an analyst at American Technology Research in San Francisco who has a ``buy'' rating on the stock, which he doesn't own. ``It's hard for them to lower expenses while they are trying to improve execution.''

Chief Executive Officer Hector Ruiz is struggling to return his company to profitability after product delays forced him to cut prices to compete with newer Intel processors. Expenses have also grown as he pays for the company's largest-ever acquisition.

Advanced Micro shares climbed 10 cents to $14.65 in extended trading. They rose 44 cents, or 3.1 percent, to $14.55 at 4:02 p.m. on the New York Stock Exchange and have fallen 29 percent this year.

Seasonal Increase

For the current period, ``AMD expects revenue to increase in line with seasonality,'' according to the statement. The company doesn't give specific forecasts.

In addition to expenses related to the $5.4 billion takeover of ATI Technologies Inc., Ruiz's plan to build enough capacity to provide 30 percent of the world's PC chips is also hurting profit.

Rivet said the company ``has a shot'' at achieving his goal of breaking even by the end of the year, if it can get to $2 billion in sales. He said that the company won't cut jobs or slash spending on research or new production to speed progress.

``If we get to $2 billion, I think we can do it,'' he said. ``I've said all along, we're not going to cut our way to prosperity.''

Analysts on average aren't predicting a profit for the company until 2009. For the third quarter, they estimated, on average, a net loss of 66 cents a share, according to the Bloomberg survey. Excluding certain items, the loss was 49 cents a share, better than the 63 cents analysts anticipated. Expenses related to the acquisition of ATI cost the company $120 million in the quarter.

A Step Closer

Gross margin, the percentage of sales left after production costs, was 41 percent in the third quarter. That's wider than the 33 percent in the second quarter and still trailed the 55 percent gross margin a year earlier.

``They have to get their margins in the high 40s before they can even approach profitability,'' said Cody Acree, a Dallas- based analyst for Stifel Nicolaus & Co. He suggests buying the shares in the short-term and doesn't own them. The stock may reach $20, he said. Today's report ``takes them closer to breakeven in December.''

Research firm IDC said yesterday that PC shipments rose more than 15 percent from a year earlier in the third quarter, supporting Intel CEO Paul Otellini's comments that it was demand strength, rather than gains in market share, that helped his company's revenue and profit beat estimates.

After ending 2006 with an 11-year market share high of about 25 percent, Advanced Micro's slice of the industry has shrunk back to about 23 percent, according to Cave Creek, Arizona-based Mercury Research. Intel has the rest of the market.

Advanced Micro won market share in notebook computers and lost less than one percent in servers in the third quarter, according to Rivet.

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

Last Updated: October 18, 2007 18:51 EDT