NEW YORK (CNN/Money) - Advanced Micro Devices said Wednesday that its third-quarter net loss widened beyond expectations as the No. 2 maker of computer chips struggles through a persistent business downturn.

But looking ahead, AMD said the current quarter's loss will narrow sequentially, and it predicted a "significant" improvement in sales. That news sent the company's stock up 36 cents, or 10 percent, to $3.85 in after-hours trading, narrowing AMD's year-to-date loss to 75 percent.

Advanced Micro Devices said it lost $254.2 million, or 74 cents a share, on a net basis in the September quarter. Analysts surveyed by First Call expected Sunnyvale, Calif.-based AMD to lose 67 cents a share, on average. AMD lost $97.4 million, or 28 cents a share, in the year-ago quarter.

Still, the company suggested that this quarter's loss may beat the 57 cents a share that Wall Street is forecasting. And it expects to break even by the second quarter of 2003, according to Reuters, which cited the company's conference call with analysts.

"Based on expected overall sales improvement, AMD expects to significantly reduce its operating loss in the fourth quarter compared to the third quarter," the company said in a statement.

AMD expects fourth-quarter revenue will rise about 20 percent from the third quarter, according to Reuters.

AMD's announcement comes after a warning earlier this month that it would miss its third-quarter revenue targets by a wide margin. On Tuesday, Intel (INTC: Research, Estimates), the world's largest supplier of PC microprocessors, said it does not expect to see an improvement in profits in the fourth quarter.

The computer business is still struggling. AMD's third-quarter sales declined by 34 percent to $508.2 million from the third quarter of 2001 and by 15 percent from the second quarter of 2002. That matched forecasts.

AMD (AMD: Research, Estimates) is a major supplier of microprocessor chips for personal computers as well as flash memory chips used in a range of electronics such as digital cameras and music players.

PC processor sales fell by 31 percent to $262 million in the third quarter compared with the second-quarter figures. Flash memory sales rose 8 percent sequentially to $189 million.

But in the current quarter, AMD said increased forecasted demand for high-end cell phones would help flash memory product sales. And "based on anticipated seasonal patterns and the benefits of a better-balanced inventory in the supply chain, and an improved product mix, the company expects increased PC processor sales," AMD said.

AMD, to cut costs and bring down its breakeven point, is also cutting its planned capital spending in 2002 to $750 million from an earlier planned amount of $850 million, Chief Financial Officer Robert Rivet said on the call.

Rivet, according to Reuters, said AMD aims to cut its operating costs by $350 million in 2003. He added that he expects AMD to be close to breakeven on a cash-flow basis in the fourth quarter, excluding a restructuring charge it plans to take during the period