Updated from 5:15 p.m. EDT

AMD

(AMD) - Get Report

posted upside surprises on both sales and earnings in its first quarter, though it continues to lose money.

After hours, shares dipped 42 cents or 5.3% to $7.48.

Sales totaled $715 million, down 21% from last year but 4% above the prior quarter. Revenues outpaced expectations for $683 million, according to Thomson Financial/First Call.

The company posted a net loss of $146 million or 42 cents per share, less than analysts' projections for a 48 cent loss.

Last year AMD posted a GAAP earnings loss of 3 cents a share.

"In a tough market environment and in a quarter that is typically seasonally down, we grew our revenue by four percent from the fourth quarter of 2002," said CFO Robert Rivet. "We believe we gained market share in both our PC processor and flash memory product lines. And we made significant operating improvements that better position us for a return to profitability."

Though it declined to give specific guidance, AMD expects processor sales to be flat to up in the next quarter, historically the weakest of the year for the company. Sales will be helped by an improved product mix and the expected benefits of a leaner PC supply chain inventory.

Flash sales should also see a sequential rise in revenues.

Referring to likely share gains in the just-ended quarter resulting from Intel's price hike on flash, Rivet said, "Our competitor probably did us a favor by the pricing actions they took. That certainly gave us some opportunities."

Analysts have generally lauded AMD's announcement at the close of March

that it will create a new private company by combining its flash operations with those of

Fujitsu

. Observers say the move will allow AMD to focus on its core microprocessor business.

Next Tuesday, the company debuts its Opteron chip for servers, the first introduction in its new Hammer family of chips. While the server version has remained on schedule, the desktop component has been delayed twice, and won't be available until September.

The company hasn't yet announced any orders from major computer makers, though Sun is reportedly considering using Opteron in one of its servers.

In response to an analyst question, Rivet said unit volume sales of Opteron are likely to be "relatively small" in the June quarter. "It will be the second half before anything I'd classify as meaningful," he said.

Microsoft said last week that it's developing a Windows operating system that will support Opteron in servers and workstations. It's also creating an OS compatible with the upcoming Athlon 64 chip for desktops and notebooks.