Thank you, Lisa, and good afternoon, everyone. I'm pleased with our performance for the third quarter of 2017. We increased revenue 26% year-over-year, expanded gross margin and achieved both operating and net income, with net income of $110 million and diluted earnings of $0.10 per share. We are executing well with our strongest portfolio of products in many years, including our Ryzen, EPYC and Radeon Vega offerings. Let me provide some specifics for the third quarter. Revenue of $1.64 billion grew 26% year-over-year and 34% sequentially. This is our highest quarterly revenue since the fourth quarter of 2011. Year-over-year growth was primarily due to our Computing and Graphics segment, while sequential growth was driven by the Enterprise, Embedded and Semi-Custom segment revenue seasonality as well as higher Computing and Graphics segment revenue. We also took another step in our IP monetization efforts by closing a patent licensing agreement that had a positive impact on both our segments. Gross margin was 35%, up 4 percentage points year-over-year, primarily driven by the benefit of IP-related revenue and a richer mix from the Computing and Graphics segment, which were partially offset by cost associated with our GLOBALFOUNDRIES Wafer Supply Agreement for wafers purchased at another foundry. We continue to make good progress on the ramp of our new high-performance products, which had a positive impact on our gross margins.
Operating expenses were $419 million compared to $353 million a year ago. The increase was primarily due to higher R&D-related investments and expenses related to annual employee incentive programs driven by our better financial performance. Operating income was $155 million in the third quarter of 2017, a solid improvement from $70 million a year ago. Third quarter net interest expense, taxes and other was $45 million, up slightly from $43 million a year ago. Lower interest expense from a year ago was largely offset by withholding taxes for licensing revenue. Net income was $110 million or diluted earnings of $0.10 per share as compared to $27 million or $0.03 per share a year ago. The diluted earnings per share calculations for the third quarter of 2017 was based on 1.143 billion shares, which includes 100.6 million shares related to our 2026 convertible notes. Adjusted EBITDA was $191 million, compared to $103 million a year ago. Now turning to the business segments.
Computing and Graphics segment revenue was $819 million, up 74% year-over-year, primarily due to strong sales of our Radeon graphics and Ryzen desktop processors. Computing and Graphics segment operating income was $70 million compared to a loss of $66 million a year ago.
The solid improvement was primarily due to higher revenue. Enterprise, Embedded and Semi-Custom revenue was $824 million, approximately flat year-over-year due to lower semi-custom SoC sales partially offset by IP-related revenue. Additionally, server revenue increased from a year ago driven by the increased sales of EPYC products. As you heard earlier from Lisa, customer interest and deployment plans are strong. Operating income was $84 million, down $52 million from $136 million a year ago, primarily due to higher costs.
Turning to the balance sheet. Our cash, cash equivalents and marketable securities totaled $879 million at the end of the quarter, up from $844 million in the prior quarter, primarily due to higher revenue. Inventory at the end of the quarter was $794 million, down 5% from $833 million in the prior quarter.
Long-term debt on the balance sheet was $1.36 billion. Total principal debt, including our secured revolving line of credit, was $1.74 billion. In the third quarter, we used $28 million from our lower interest secured revolving line of credit to pay down long-term debt, which has a higher interest rate.
Free cash flow was $32 million compared to $20 million in the year-ago period. Before turning to our outlook for the fourth quarter of 2017, which is a 13-week quarter, let me remind you for comparative purposes that the fourth quarter of 2016 was a 14-week quarter. For the fourth quarter of 2017, we expect revenue to decrease approximately 15% sequentially, plus or minus 3%. At the midpoint, this equates to revenue growth of approximately 26% year-over-year; non-GAAP gross margin to be approximately 35%; non-GAAP operating expenses to be approximately $410 million; non-GAAP interest expense, taxes and other to be approximately $30 million; and inventory to be down sequentially. We now expect 2017 annual revenue to increase by greater than 20% over 2016 compared to the prior guidance of mid- to high-teens percentage growth. We do not anticipate significant changes to the diluted share count in the fourth quarter, and you can find additional information regarding the share count in the CFO commentary, which is posted online.
In closing, the third quarter was a strong quarter, and we are pleased with the momentum of our new premium products. We are making solid progress towards our growth and margin expansion objectives, and as our financial performance improves, we remain committed to investing in our multi-generational road maps and achieving our long-term financial targets.
With that, I'll turn it back to Laura for the Q&A session. Laura?