Advanced Micro Devices Inc reported better-than-expected first-quarter revenue as PC and server spending rebounded, but investors cashed out of a rally triggered by stellar Intel Corp results.

The company -- which had posted 12 consecutive quarters of losses until the previous quarter -- said on Thursday its second-quarter sales would be seasonally weaker, striking a muted tone in contrast with Intel's bullish comments on corporate spending bouncing back in 2010.

Shares of AMD, which in Thursday's regular session hit levels not seen since November 2007, slid 5 percent as investors sold out. The stock had added 8 percent since Intel's better-than-expected results.

The stock was a little ahead of itself, said Broadpoint Amtech analyst Doug Freedman. He said the company's real earnings growth will come in the back half of the year.

In the meantime, the company's in a show-me mode, he said. Investors want to see the earnings power.

The company's financials have been confusing for investors since it spun off its chip manufacturing arm last year, creating a private contract chip manufacturing company for which AMD currently has a 30 percent stake.

Now called GlobalFoundries, the private contract manufacturer has since expanded to create chips based on designs by UK-based ARM Holdings PLC, while AMD has continued to focus on chip design.

Debt-laden GlobalFoundries was a burden on AMD's financial statements for many quarters while the separation was finalized.

GROWTH

AMD said its computer-chip design business's revenue grew 23 percent from the previous year as manufacturers such as Hewlett-Packard Co and Dell Inc broadened the number of computers they sold containing an AMD processing brain.

Its graphics chip business also grew substantially, increasing revenue 88 percent over the previous year, as the company shipped more products to customers.

AMD said gross margins grew to 43 percent from 41 percent the same time last year, when adjusted to exclude its former chip making business. Gross margin for the seasonally stronger fourth quarter was also 41 percent after adjustment.

The company said it targets gross margins between 40 and 45 percent for 2010, and expects that number to reach beyond 45 percent gross margin in the longer term.

Customer interest in our platforms is very promising, said AMD's Chief Executive Dirk Meyer. The cash generation potential of the business is beginning to be realized and we are improving our balance sheet.

Revenue rose to $1.57 billion, above the average Wall Street expectation of about $1.54 billion, according to Thomson Reuters I/B/E/S.

Net income rose to $257 million, or 35 cents per share, in its fourth quarter ended March 27, after a loss of $416 million in the year-ago period.

The company's results also included a one-time non-cash gain of $325 million from AMD's stake in GlobalFoundries.

The chip maker said it expects revenue to be roughly flat to down 5 percent in the current second quarter.

Shares of the Sunnyvale, California-based company fell 4.5 percent to $9.70 after closing at $10.16, gaining 2.7 percent in the regular session on the New York Stock Exchange.

(Reporting by Ian Sherr; Editing by Gary Hill and Matthew Lewis)

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