Updated from 8:06 a.m. EDT

The only thing fatter than Advanced Micro Devices' ( AMD) third quarter was its earnings multiple.

The world's second-largest chipmaker walked past estimates, as strong microprocessor sales helped to boost revenue 23% and earnings nearly 73%. AMD earned $76 million, or 18 cents a share, on sales of $1.52 billion, up from $44 million, or 12 cents a share, on sales of $1.24 billion a year earlier.

Analysts had expected earnings of 8 cents a share on sales of $1.38 billion, according to Thomson First Call. AMD had said it expected computer-chip sales to "exceed normal seasonal patterns" in the third quarter, but declined to project memory unit results.

"It's clear evidence that this is a much different company than it was two to three years ago," said Sangeeth Peruri, semiconductor analyst for Seligman Technology Group, a division of J & W Seligman & Co., which holds AMD shares. "If the company continues to grow at these levels, the leverage is huge in the model."

Still, it's possible the margins should have been even higher, Peruri said. One factor that could have weighed on them was $66 million in bonuses that AMD paid out during the quarter, up dramatically from $16 million in the previous quarter and $17 million in the same period a year ago.

"With the revenue number they came up with, it's possible people were hoping for a larger EPS," Peruri said.

Reflecting that, the stock shed $1.25, or 5.2%, to $22.75 early Wednesday. The price is 98 times this year's Thomson First Call estimate and 35 times the 2006 consensus, although those estimates will rise following the blowout quarter.

But for Wall Street, the investment reaction on Wednesday also seemed to reflect the notion that it might be wise to take profits on a company that could be at an operational peak. Several analysts' notes reflected concerns about performance in 2006, namely that AMD's latest quarter may have been helped by missteps by rival Intel ( INTC) that can't be counted on next year.

With AMD shares marching steadily higher for the past five months -- rising by more than two-thirds -- a catalyst to take the stock any higher didn't necessarily appear in AMD's report.

AMD's gross margin was 41% in the three months to Sept. 25, up from 39% in the previous quarter and above 40% in the third quarter last year. The company has long-term targets of 60% margins, but that takes into consideration the memory group's spinoff.

The Sunnyvale, Calif.-based company recorded an operating profit of $79 million compared with $68 million a year ago and an operating loss of $7 million in the previous quarter.

"This was another record-breaking quarter for AMD's microprocessor business," AMD CFO Robert Rivet said. "Exceptional customer demand for our server, mobile and desktop processors helped drive microprocessor sales growth of 44% compared to the third quarter of 2004, and 26% compared to the second quarter of 2005.

"We established new quarterly records in unit and dollar sales, gross margin and operating income," the CFO said.

AMD said it expects fourth-quarter microprocessor sales to grow between 7% and 13% sequentially, which represents a year-over-year increase of 42% to 50%. The company did not provide guidance for its flash memory business, called Spansion, which it plans to spin off in a public offering.

The company generated record operating income of $209 million and sales of $969 million within its computation products group, which includes PC, server and laptop chips and chipsets.

In the previous quarter, this unit posted a $100 million operating profit on sales of $767 million; a year ago it posted an operating profit of $89 million on $673 million in sales.

The unit's operating margin came in at about 21%, breaking the 20% barrier for the first time ever.

AMD more than doubled its sales to large, global PC makers from a year ago, while record processor sales were the result of a 72% sequential increase in sales of AMD Turion 64 mobile processors.

The company also cited strong sales in such high-growth markets as Russia, India and China.

AMD's memory group lost $50 million on sales of $516 million in the third quarter vs. an operating loss of $90 million on sales of $462 million in the second quarter.

If you liked this article you might like

Peregrine Gets a Loan and a Sale

Peregrine Gets a Loan and a Sale

Chip-Equipment Book-to-Bill Climbs Above Parity

Chip-Equipment Book-to-Bill Climbs Above Parity

Volcanic Paradise

Volcanic Paradise

Matching Money and Morals

Matching Money and Morals

A Getaway From the Ordinary

A Getaway From the Ordinary