Recently, ATI Technologies has been in the news for supplying the graphics chips for the Xbox 360 and Nintendo Revolution next-generation consoles. Today, though, it made headlines for a more unwelcome reason--lower-than-expected earnings.

Overall, gross revenues were up for ATI's third fiscal quarter, which ran from March to May, rising from $491.5 million to $530.2 million. But stock-based compensation and research-and-development costs torpedoed the 8 percent earnings spike, causing an overall year-on-year loss of $445,000 for the quarter. That figure stands in stark comparison to ATI's fiscal year Q3 of $48.6 million reported a year ago and well below analysts' expectations of earnings per share of 4 cents.

The atrophied bottom line for ATI showed in the words of CEO David Orten, who opened this morning's earnings call with a gloomy confession. "Q3 was a challenging and disappointing quarter that fell well below our expectations, both in top-line revenues and in gross margins," he said.

ATI also said the company reduced its fiscal-fourth-quarter top-line revenue guidance from $580 million to $550 million. Pacific Growth Equities analyst Brian Alger told Reuters, "The guidance is a revision and it's a bit shocking."

In the call, Orten did his best to rally the troops, spending some time outlining what the company had done right the past quarter. "We delivered on some critical milestones in Q3 as well. Our OEM traction remained strong in both our desktop and notebook discrete product lines," Orten said. "HyperMemory is now shipping in Tier 1 OEMs such as Dell, HP, and Fujitsu Siemens. And mobility rating on X700 launched the new flagship designs from Gateway and Acer."

Orton added, "We launched our new multi-GPU platform architecture called CrossFire at Computex about three weeks ago, and we received broad industry support from leading motherboard manufacturers and our add-in board partners. And our innovative solution offers an unparalleled choice in flexibility for gamers as our CrossFire technology works on all games and sets new standards for image quality."

News of the flat earnings is compounded by the recent showing of ATI's archnemesis in the graphics game, Nvidia. That chipmaker launched its latest top-line GPU, the GeForce 7800 GTX, earlier this week at a $599 price point. As reported in today's San Jose Mercury News, ATI is running late with its new chip, code-named R520. It was due to be announced at the same time as Nvidia's chip, the paper said.

At press time, shares of ATI on its home exchange in Toronto had tumbled 10.3 percent, a new two-year low.