Advanced Micro Devices Inc. (AMD), like rival Intel Corp. (INTC), reported demand for PC chips picked up in the third-quarter, even as the company posted its third straight year of losses in the third quarter.

AMD said strength in both of its businesses, selling the chips that run computers and graphics cards used for editing video and running games, helped lead to an 18% jump in sequential revenue. AMD said it would have been profitable, excluding the impact of its spun-off manufacturing operations.

The results offered support for Intel's bullish earnings report Tuesday that suggested PC demand was recovering even faster than many had hoped.

"It basically confirms all the positive things that we've heard for the past couple months here," said Wedbush Morgan analyst Patrick Wang.

AMD is keeping pace with Intel, he said, and with strong back-to-school sales, "We saw both of these companies benefit."

AMD shares, up nearly 75% since mid-August, fell following the report, dropping 4.5%, to $5.91 in after-hours trading.

The semiconductor maker also said it expected fourth-quarter revenue to be "up modestly" from the third quarter. Analysts were expecting revenue of $1.36 billion, which is lower than the third quarter's sales.

Chief Executive Dirk Meyer attributed AMD's $2 million core profit to "strong demand for our product and platform offerings combined with disciplined execution."

Meanwhile, amid the improving PC market, AMD continues to struggle with stiffening competition with Intel and its own financial burdens, especially after its 2006 acquisition of ATI Technologies. While AMD's manufacturing spinoff bolstered its cash position, the company still retains a high debt level.

But some analysts say AMD's new chips for portable notebooks and servers put it in a position to regain market share against Intel in 2010.

In the latest quarter, AMD reported a loss of $135 million, or 18 cents a share, narrower than the prior-year loss of $127 million, or 22 cents a share, and the average analyst estimate on Thomson Reuters for a loss of 42 cents a shares. The latest results included a $66 million gain from the repurchase of debt.

Revenue dropped 22% to $1.4 billion but surpassed the Thomson Reuters estimate of $1.26 billion.

Gross margin fell to 41.9% from 51% amid the sales woes.

Shipments of microprocessors and graphic processor units were flat from last year, while the average selling prices of both types of chips were down from a year earlier.

-By Jerry A. DiColo; Dow Jones Newswires; 212-416-2155; jerry.dicolo@dowjones.com

(Kathy Shwiff contributed to this report)