Advanced Micro Devices forecast stronger-than-expected revenue growth of 22 percent in the third quarter from the second, as the chip maker expands into new game consoles and other markets to offset slowing sales of personal computers.
However, the stock reversed earlier gains on Thursday after AMD said gross margins would fall as it seeks a foothold in game consoles.
AMD, which for decades has competed against market leader Intel Corp in supplying chips for PCs, is rushing to refocus on new markets as consumers buy fewer laptops and more tablets and smartphones.
AMD processors are being used in Microsoft Corp's upcoming Xbox One and Sony Corp's next-generation PlayStation game consoles. These are largely behind AMD's upbeat revenue forecast.
AMD said its gross margin in the second quarter was 40 percent and would fall to about 36 percent in the third quarter. Analysts on average had expected a third-quarter gross margin of 39 percent.
With consumers increasingly playing games on tablets, it is also unclear how many of the new consoles Microsoft and Sony would sell, but optimism about the impact on AMD's revenue has helped drive its stock up 73 percent since the beginning of April.
Bernstein analyst Stacy Rasgon said AMD's gross margin forecast was probably behind the after-hours drop in the company's shares.
AMD's report comes after Intel warned on Wednesday that it does not expect revenue to grow in 2013 due to slowing PC industry.
Global shipments of personal computers dropped 11 percent in the second quarter, the fifth straight quarterly decline in a market that has been devastated by the popularity of tablets.
AMD reported second-quarter revenue of $1.161 billion, down from $1.413 billion in the year-ago quarter. It said third-quarter revenue would rise 22 percent, plus or minus 3 percent, compared with the June quarter. That increase would be about $1.416 billion.
Analysts, on average, had expected revenue of $1.108 billion in the second quarter and $1.223 billion in the third quarter, according to Thomson Reuters I/B/E/S.
AMD posted a net loss of $74 million, or 10 cents a share, in the second quarter, compared with a profit of $37 million, or 5 cents a share, in the same quarter last year.
The company said its non-GAAP loss per share was 9 cents, better than the 12-cent loss expected by analysts.
AMD's stock declined 3.66 percent in extended trade after closing up 5.94 percent at $4.64.