ATI Technologies

(ATYT)

said its third-quarter loss narrowed from a year ago, but the company warned that its fourth-quarter results would be below analyst estimates.

The company posted a loss of $2 million, or 1 cent a share, compared to a loss of $27 million, or 12 cents a share, in the year ago quarter. On an adjusted basis excluding one-time charges, the company earned $19.2 million, or 8 cents a share, in line with the consensus estimate provided by Thomson Financial/First Call. A year ago, ATI posted an adjusted loss of $4.2 million, or 2 cents a share.

The company attributed the earnings increase to higher revenues from stronger sales in the PC market, royalties received from Nintendo's Gamecube sales, and higher gross margins on graphics processors.

Revenue for the quarter increased to $266.2 million from $245.5 million last year, but fell slightly short of the consensus estimate of $270 million.

In a press release, the company said, "We continue to execute our aggressive strategy of introducing new products for the PC market and expanding into the consumer digital market."

Looking ahead, ATI said it expects some softness in the fourth quarter. The company believes the system integrator market will be weak, causing revenue to be flat to slightly down. Wall Street has been looking for revenue growth to $285 million for the quarter. ATI also said EPS would be lower than expected, coming in the 5 cents to 7 cents a share range on an adjusted basis, below Wall Street's estimate of 10 cents.

Shares of ATI Technologies were plunging 18% to $8.15 on the lowered outlook in premarket trading after closing at $9.88 Tuesday.