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UPDATE 2-AMD forecast misses on lower gaming console chip demand, shares fall

(Adds analyst comment, background, details on gaming console cycle, updates share movement)

July 30 (Reuters) - Advanced Micro Devices Inc forecast third-quarter revenue below Wall Street estimates on Tuesday, as the U.S. chipmaker grapples with lower demand for its chips used in gaming consoles, sending its shares down 3% in extended trading.

Gamers are delaying purchases of current models of Microsoft Corp's Xbox One console and Sony Corp's PlayStation 4 as both devices are in the late stages of their life cycles.

Sales in AMD's enterprise, embedded and semi-custom segment fell 12% to $591 million in the second quarter, largely hit by lower demand for its chips used in gaming consoles. But higher sales of the company's EPYC server processor helped the segment beat FactSet estimates of $544.3 million.

"People assumed game consoles would be normal seasonally. We previewed the quarter and said this business would be weaker because it is the end of this seven-year product cycle," said Hans Mosesmann, an analyst with Rosenblatt Securities.

Microsoft's next-generation Xbox console as well as Sony's PlayStation 5 are both expected to launch next year. Both the devices will be powered by AMD's chips.

AMD expects revenue of about $1.8 billion, plus or minus $50 million for the three months ending September. Analysts on average had expected revenue of $1.95 billion, according to IBES data from Refinitiv.

The company forecast a mid-single digit percent increase in 2019 revenue, as growth in its Ryzen, EPYC and Radeon processors offsets lower-than-expected semi-custom revenue.

AMD said sales in its graphics and computing business fell 13% to $940 million in the latest quarter, missing FactSet estimates of $983 million as higher sales in client and datacenter graphics processing units failed to counter lower graphics channel sales.

Net income fell to $35 million, or 3 cents per share, in the second quarter ended June 29, from $116 million, or 11 cents per share, a year earlier.

Excluding items, AMD earned 8 cents per share, in line with estimates.

Revenue declined 12.8% to $1.53 billion. Analysts on average had expected revenue of $1.52 billion, according to IBES data from Refinitiv. (Reporting by Arjun Panchadar in Bengaluru; Editing by Bernard Orr and Sriraj Kalluvila)