超微半導體 (AMD) 2002 Q4 法說會逐字稿

Welcome to the AMD Q1 earning conference call. During the presentation, all participants will be in a listen-only mode. Afterwards we'll conduct a question and answer session. At that time if you have a question press the one followed by the four on the telephone. As a remind this conference is being recorded Wednesday, April 16, 2003. We like to turn the conference over to Michael Haase, Director of Investors Relations. Please go ahead, sir.

Thank you and everyone, everyone. The format of the call today will include prepared comments followed by a question and answer period. Participants of today's call of Hector Ruiz, our President and Chief Executive officer, Robert Herb, our Executive Vice President of Sales and Marketing, and Bob Rivet, our Chief Financial Officer. This calling will have a live broadcast and will be replayed on the internet on two sites; street event.com and AMD.com. The telephone replay number for North America is 800-633-8284. Outside of the United States the number is 402-977-914 0. The access code for both is 211- 38969. I would like to take this opportunity to remind you that we will be launching our AMD off drawn processor in New York City on the 22 of April . If you would like to attend and haven't already RSVP 's please send me an e-mail or give me a call. My contact information is included on the press release today.

Before we begin the call, I would like to caution everyone that we will be making forward-looking statements about management's goals, plans and expectations. As you know the semi conductor industry is generally volatile. Our product and process technology projects and manufacturing processes are complex. Current world wide economic and industry conditions make it usually difficult to forecast product demand at this time. Because our actual results may differ materially from our plans and expectations today, I encourage you review our filings with the Securities & Exchange Commission where we discuss in detail our risk factors in our business. You will find detail discussions in our most recent SEC filings include the annual report on form 10-K.

With that, I'd like to introduce our CEO Hector Ruiz to formally begin the call.

Thank you, Mike. Once again I would like to report on our accelerating progress to a sustained economic prosperity. I will then ask Bob to go into detail on the past quarter. Then I will finish with some comments and our outlook going forward. Then we'll take your questions.

Many of you will remember back in October we introduced AMD's three phased plan to more aggressively take control of our future. I am very pleased with our continued progress in executing that plan. As we reported in the fourth quarter and here again in our first quarter we continue to do everything we set out to do. And looking ahead we believe that 2003 is going to be a break out year for AMD. In phase one of our plan we focus on three key things: Rebalancing PC supply chain inventories, bolstering our capital structure and reducing our break even pint. We continue to aggressively manage our PC supply chain inventories to these high levels. With 800 million dollars in cash our capital structure remains solid. We're driving our break even point lower. In fact, we remain on track to achieve a break even point below 800 million dollars in the second quarter of this year.

In the just completed quarter, we launched phase two of our plan. A combination of our aggressive operational flexibility strategy and a portfolio of important new revenue opportunities. These efforts are producing results. Our $28 million quarter to quarter sales increase resulted in more than $90 million improvement in operating performance. We believe our new top line initiatives will continue to generate strong incremental growth. Most notable in this quarter record revenues and unit shipments in China both in PC processors and memory. A reflection of our concentrated efforts to penetrate what will be the most important new technology market of the decade. And our enhanced precision in the mobile PC category where we sold record unit shipments in the quarter and announced over a dozen new models many targeted at the thin and light segment. And our introduction of the AMD Athlon XP 3,000 Plus, the world's highest performing desk top PC processor and the AMD Athlon MP 2600 Plus for service in work stations. This new revenue initiatives continue to bear fruit as demonstrated by our top line increase in a seasonally down quarter. Perhaps the stronger sign of our emergent success is the fact that we grew revenue in both our memory and processor product line. We believe we gained shares in each of these lines as well. But perhaps our most important accomplishment and a testament to our collective business model was the signing of our memorandum of understanding to further integrate the operations of our industry leading flash memory businesses. In this landmark agreement we're building from one of the most successful joint ventures in U.S./Japan history. This event is also another great example of what we call customer centric innovation. The third phase of our three phase program. It is a symbol of the new AMD, a company dedicated to creating innovation in direct response to customer needs and delivering real customer benefits. A company structured to deliver more targeted solutions to our customers and our customers' customer. As I mentioned before, we believe 2003 is going to be a break out year.

At this point I would like to ask Bob to review highlights of the first quarter.

Thanks Hector. I will review our first results followed by an outline of our progress and cost reduction programs and finally I will provide you with some forward looking guidance. Because our fourth quarter results include significant restructuring of other charges our quarter to quarter comparisons will be first quarter GAAP to fourth quarter proforma. As detailed in our press release issued this afternoon, first quarter sales were $715 million. In what is typically a seasonally down quarter sales were up 4% compared to the fourth quarter consistent with projections of the last earnings call. The sales increase was driven largely by strength in our PC processor business. AMD's operating results in the first quarter was $125 million compared to $217 million in the fourth quarter quarter. Our operating loss was reduced by over $90 million or 42% compared to the previous quarter driven by $28 million in top line growth and significant progress in our on-going cost reduction program. Operating margin fall through was excellent. Since the third quarter we have reduced our operating loss by nearly $200 million. Gross margin is 31% for the quarter, a significant improvement from the 26% in the fourth quarter. First quarter gross margin dollars increased by $38 million which represents 130% sales through on the gross margin line. This is mainly driven by increased unit volume and focused manufacturing cost reductions. As per our prior guidance research and development spending was $203 million for the quarter flat when compared to the prior quarter. Marketing general and administrative spending was $138 million for the quarter, down $56 million or 29% compared to the fourth quarter. This decrease was primarily due the realization of significant cost reduction efforts we have previously outlined. Net loss for the first quarter was $146 million or 42 cents per share versus 68 cents per share loss in the fourth quarter. Again excluding the fact of restructuring and other special charges.

Now I'll switch to the business overview for the quarter. First quarter PC processor revenues were $468 million an increase of 11% as compared with $420 million in the fourth quarter. AMD showed a significant increase in both unit and dollar sales based on record mobile shipments and increased penetration of merging markets led by China. Overall our PC processor business did well globally including increased sales in the Americas, Europe and Asia. In the first quarter we trained inventory on the PC supply chain and we believe inventory is well positioned based on our current market outlook. We also believe we gained market share in the quarter. In a seasonally down first quarter flash memory revenue was $218 million up nominally compare to the first quarter driven by increased unit shipments. What appears to be a down market this was our fourth consecutive quarter of sequential increase revenue and record shipments. We continue to penetrate the high end feature rich mobile phone market and believe we are gaining slash market share. Slash continue to grow and nearly doubled from the first quarter of last year.

Turning to the balance sheet. With our increase in sales and the considerable improvement of cost structure EBITDA in the the first quarter significant at more than $100 million from the negative $18 million in the fourth quarter to a positive $84 million in the first quarter. This was consistent with prior guidance of positive EBITDA by the first quarter of 2003. Cash balances at the first quarter at $800 million. We'll continue to reduce our cash value and expect to cut a substantial in the second quarter as a result of lower capital expenditures and reduced expenses. We are on track to be cash flow positive in the third quarter. Capital expenditures were $181 million in the first quarter compared to $138 million in the fourth. Once again quarterly depreciation was larger than capital expenditures. We are still on track to our capital expenditure plan for 2003 of $650 million. Accounts receivable day sales outstanding showed continued improvement to 50 days from the fourth quarter level of 45 days. AMD's head count at the end of the first quarter was 12100 down from 12,800 in the first quarter and 14,400 in the first quarter of the prior year. Head count will continue to decline on the second and third quarters of this year as recomplete our previously announced restructuring plans.

Now let's turn to the outlook. We believe we will continue to gain share in the wide segment and achieve our fifth consecutively quarter increase in flash memory revenues. We believe our processor sales will be flat to up and historically weakest quarter seasonally based on improved product mix and anticipated benefits of a better balanced PC supply chain inventory. We plan for cost reduction in the quarter sufficient to achieve our target of reducing our quarterly cost structure to below $800 million. Total second quarter operating expenses are expected to be down compared to the first quarter. EBITDA is anticipated to continue to be positive and growing in the second quarter. A quarterly tax rate will be at zero until we return to profitability. Once profitable we anticipate tax rate to be in the range of 10 to 20% throughout 2003.

In conclusion, we have demonstrated a capability to quickly make fundamental changes in our business model while maintaining positive product tech in our core markets with our strategic interest in China, joint venture with Jujitsu, and the launch of our upcoming option tron and families we believe we're doing everything possible to position ourselves for a return to sustained profitability. Now I'll turn it back over to Hector.

Thank you, Bob. I would like to wrap up by saying I have seen a renewed sense of accomplishment, a renewed sense of confidence, and a renewed sense of focus at AMD. We are setting some aggressive goals for ourselves and we are attaining them. We have made great stride to reconfigure our operating model. We remain on track to lower our break even point to be below $800 million in the current quarter. We are positioning ourselves for leadership in every category in which we have chosen to compete. In our memory business where we have agreed to combine operations with Jujitsu. In our personal connectivity. On chip technology offer performance leadership, lower consumption at the lowest possible cost. In our computation products group where we continue to launch processors that set new performance standard in desk top, server, canal in light mobile factors. But nothing compares with what we're about to announce next Tuesday in New York city. The announcement of our upcoming processor family is perhaps a single most important event in the history of our company. It is the moment that we have been waiting for. It the moment our customers have been waiting for. And it is the moment that our rapidly growing list of partners has been waiting for. And I am sure it is the moment that many of you have been waiting for. It is the future of AMD. It is the future of the X 86 architecture. And we believe it is the future of the computing industry. We hope you can join us either in person or on the web for this unprecedented moment in the history of our company. We will share with you some things you expect and a few surprises. And in the end we're confident that you will not be disappointed. Thank you for your attention. And I would now like to turn it back to Mike for the Q & A.

Operator, we're ready for the first question.

Ladies and gentlemen, if you would like to register a question please press the one followed by the four on the telephone. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. If you are using a speaker phone, please lift up your handset before entering your request. One moment please for the first question. Our first question comes from the line of Dan Niles with Lehman Brothers. Please go ahead with your question.

Sure. I guess a couple of them. I guess, Hector, in the last couple of conference calls you talked about getting to break even in Q2 I guess you are implicitly backing off that and just saying that your cost structure will be below $800 million. I just wanted to check on that.

First you know we're not changing our position and we're not backing off from what we believe that there's a shot at breaking even in the second quarter. The things that we control is our ability to meet the cost structure needed to break even at a revenue approximately of $800 million will be achieved. We feel we're on target to meet that and very confident of that. What we see today challenging though is the environment is very difficult to call. The market is uncertain, stability is poor. If you look at the history of our industry for the past nine years that we look at the data we've never had a situation where the market has grown from the first to the second quarters in those areas in which we participate that would imply that it would be an easy task to reach our revenue goal. So we're not changing our expectations. Our goals and our internal target are to really go for that but frankly I think the market is making it very tough to call. And the structure that we intend to meet of $800 in total cost we believe will break even at that revenue level when we reach it.

Okay. I guess with regards to your sell end of processors versus your sell through or how much inventory did you drain in the channel on this the processor side. I doesn't sound like you need to do any more of that. Can you give us some sense on the ASPs and processors? It seems as though it would have had to have gone up given your better mix of portables. Can you give some order of magnitude around that?

Sure. We've been paying a lot of attention to that and let me ask Rob who has been championing that effort to comment on that.

It turns out that shipment grew considerably from Q4 to Q1. However our consumption rate remains relatively stable. While we'll did drain inventory in Q1 our shipments are more closely reflecting the actual consumption. No we're not on a program to go any further with that. If anything I am equally concerned we maybe we're a little lean in a couple areas relative to inventory. Relative to your ASP question shipments were stronger for us into Asia particularly in China where we had record sales. And a lot of that was driven by some lower end products. We achieved a relatively flat quarter to quarter on increased unit sells.

Can you give some sense on I know processors and the portable sectors have been a big push for you guys and you had some pretty decent success in that. Can you talk about how your percentage of your total processor shipments and portables may be change from quarter to quarter to get a better idea on that?

Without getting into specifics I can just tell that our shipments in mobile were up quarter to quarter fairly significantly. We actually had record mobile shipments in Q1. I would point out though that the record mobile shipments are offset somewhat again by the significant penetration we had into China with particular mostly lower end processors.

Great thank you.

Your next question comes from the line of Andre Root with Goldman Sachs. Please go ahead.

Andrew. But that's close enough. I have a question on the flash business. Looks like you gained a fair amount of share versus Intel in the quarter. They reported flash revenues down 25 or 30% you were flat. Can you give an estimate of what you think the overall market grew on a revenue basis to give us a sense of what your market share gain would have been? Then if you could break out volume changes versus ASP changes for the quarter as well.

I am going ask Rob to comment on your question. But we've seen ASPs to be reasonably stable in this environment but you know stability in the memory market means they're on a learning curve. That means we're still going down and it's still a competitive environment. But stable at least in that sense. The other part is that we believe that the flash market in total probably was down I will ask Rob to comment on that. But as you pointed out we believe we have made significant inroads in the last two quarters in particularly and we expect to continue that. As you noted from Rob's comments in his remarks we expect our flash revenue to grow in the second quarter versus the first quarter. Rob would you like to add to that.

Yeah relative to the overall market it is clear to me the flash market did decline probably by something in the neighborhood of 10% or slightly more based on the numbers we heard yesterday. I do believe that based on our flat revenues we did gain share. You asked about use and ASPs. Our unit shipments were up, ASPs were down slightly again consistent with what we expect in a stable pricing environment.

Quick thought if I may on a slightly different topic. Bob, just did a quick calculation it seems like operating cash flow in the quarter was roughly $145 or so million dollars negative. But it looks like just based on some of the abbreviated financials we looked at. But it looks like cash was down $200 million in the quarter. Was there cash usage inventories were up a little but was there anything else that used cash in the quarter?

We had a couple big -- yes to your comment. Cash is actually down $240 million from fourth quarter to the end of the first. Probably the most significant is we had a lot of severance payments that took place in the quarter as we executed to a restructuring plan. We did have some prepayments on a couple technology issues that we've been doing. So as I kind of alluded to we anticipate to make significant reduction in our cash going into the second quarter and feel very confident to have the cash flow positive by the third.

Okay. Thank you.

Your next question comes from the line of Mark Edelstone with Morgan Stanley. Please go ahead with your question.

Hi good afternoon, guys. I had a couple questions if I could. The first was on flash. And I was hoping to get a sense of to what kind of sequential increase you had in the flash market from wireless and I had a couple quick follow-ups.

From Q4 to Q1 I believe our wireless share was increased modestly. We said that we exited 2002 at about 10% share of wireless market. We increased that through 2003 to approximately 20% share of the wireless market. I believe our share in Q1 when all the final numbers come in witting flat to up modestly.

It suggests then that you had some growth in wireless but sounds like it did not meaningful outgrow the rest of your flash business?

That is generally correct. I will tell you it's also regionally based.

I appreciate that. Then just to follow up on the comments on the PC channel inventories. The deferred income on shipments to distributors is up 34% quarter to quarter. Bob, can you give us a sense as to what is driving that? Is that from flash inventories, distribution or is was there more PC processors in the distribution channel as well at the end of the quarter?

It's PC processor inventories and continues to reflect a richer mix. So we continue to position a richer mix of product in the distributors. Again we launched a 3,000 plus in the first quarter so that took place toward the end of the first quarter.

Okay. I guess is there a way that maybe you can try to put the comments on leaner inventories in the channel and some type of context either be days or weeks of unit inventory or something like that?

Yeah. Again varied a little bit product by product. But overall if you look at what we think out there in the PC supply chain of AMD based inventory we now believe we're under four weeks in general.

Thanks a lot, guys. Best of luck.

Thank you.

Your next question comes from the line of Hans Mosesmann with Sound View Technology. Please go ahead with your question.

Yes thank you. A couple questions. Intel is going through to transition here in mobile with the [Sintreno] solution. What is AMD's response or how does your product line-up over the next year compare to that solution? And any comment regarding SARS as it plays out over the rest of the year?

First of all we and our competitor have a rather differing strategy relative to offering our customers solutions whether desk top, mobile service, et cetera. And I believe that our competitors you know leverage they're very strong monopolistic position in the market to be able to force a solution on customers that they believe is best. Our strategy has been and will continue to be to use partners to be able to offer customers the ability to choose and be able to end up with the best solution that they need for their mobile computing needs. I believe that when you look at the partners that we have in terms of chips and mother boards and other parts of infrastructure that our customers are totally benefitting from being able to choose the best of the best relative to communications solutions whether wire line or wireless as well as the best CPU for their architecture. As far as SARS is concerned you know we are obviously worried as everybody else is about the situation with SARS. e have taken action to you know do everything that is prudent to safeguard the health and safety of our employees and probably mirroring very much what the industry is doing in general. For example, when employees travel from an affected area to visit another facility we ask them to work out of the home for a period of time until they're able to get past the incubation period in case there is an infection. And then after that they return to work and they have to go through our health department first to ensure that we take all the precautions necessary. So we're doing everything we can. At the same time we're limiting travel except when it's absolutely necessary either to or from the regions that are mostly affected. So we are operating very prudent. Rob, anything you would like to add on the mobile part.

Other than probably some of what Hector said reiterated. We've always been the champions of free and open competition. We believe that our mobile process solutions which we introduced to the light market right near the end of last year and you see the first systems on just here Jujitsi recently in March the fourth quarter are very well positioned in growth to move forward. The fact that we allow our customers to choose the best solution for their market we believe is an approach that does differentiate us from the competition. The one thing that is [INAUDIBLE]. It's heightened the awareness of the benefits of wireless technology. There is a wireless standard out there and there are many people who meet that standard. If we can offer up our solutions based on providing the best package of choices across different companies that's says a lot. Thanks a lot.

Your next question comes from the line of Sumit Dhanda with Banc of America securities. Please go ahead.

Hi couple quick questions. depreciation line item was up in the quarter. Did this relate to startup costs as related to your FAS 125? Also on the other IC products can you refresh us on what that incorporates and why that was down almost 50% quarter to quarter of the then I have a follow-up.

Let me answer the second part then I will ask Bob to comment on the first question. The other IC product is is a mixture of legacy products that we've exited from sometime. So a lot of end of life products that go back as far back as some of the line you know memory I am sorry communication products that at one point and time we actually had a business around. We exited that and we still have some of those products left. Part of that included is also the beginning of the new investment which is slightly small. However as we grow out of last year of the legacy product we are certainly end life to a significant amount and a lot of customers that were previous to announcement to us we needed to play those orders in time to be able to benefit from the the cycle of announcement in front of us we have exited the year with a shipment rate of those products that is of course now significantly reduced. Take that out of the equation and we're beginning to see the beginning of course of our solutions which is currently included in other IC products.

Your question on depreciation yes. The increase was driven by in particular the additional tool set we put in to FAS 25 as we continue to convert that from a micro-processor factory to a memory factor. So that's kind of the bulk of the change in depreciation.

Okay. Then as far as the other line goes is it fair to assume you will start to see slight growth off the $30 million run rate that you have in the March quarter?

I think what we expect on the other lines is the legacy products continue to die off and the new ones continue to pick up. We see that is stable for at least another quarter or two. Then begin to grow healthy after the alchemy products take off.

Great thank you.

Our next question comes from the line of Tom Thornhill with UBS Warburg. Please go ahead with your question.

A question for Rob having to do with market share. Given the growth in China as well as the growth in mobile, is your market share higher or in mobile than it is in desk stop or vice versa? And what then has been the trend in market share obviously growing in mobile but in desk top as well?

Clearly from the last couple of quarters we've been on the very positive trend in market share. Whether use end measured by someone like Mercury research or PC consumption measured by data quest. But your question relative to desk top versus mobile we actually to get the kind of overall share gains we're getting we believe we gained shares in both segments. Our mobile share gains are probably greater over the last couple quarters.

Is your mobile share significantly different than your desk top share at this point and time?

At this point they are tracking a little more closely. So they're roughly the same. I think actually our desk top share is still a little better.

One follow-up question on cost. In my view you have made some amazing success with the target here for June to be at the 800 level. What happens after June as we -- is that sort of a bottom if revenue grows or is there further potential for efficiency.

We expect there are a number of things that are going to change our yot look in the second half. First of all apples to apples comparisons we expect our cost to continue to decline. But as you may remember with announcement of our consolidation of businesses with Jujitsu on flash and we'll start reporting that at the end of the third quarter as this thing is finalized it will of course make it a little more difficult to do those comparisons. Bob, would you like to add to that?

Yeah the only thing I would add is again as we kind of outline our three phase strategy operational flexibility indeed is a strategy to try to change the cost structure of the organization to be less fixed and more variable. So as we go forward we might have I'll call it more variability in our cost to respond both up and down in the market place than we've had historically. Not ready to layout an exact number how much further cost reduction we'll have but definitely trying to in this process change the composition of that kind of cost.

Can you give any more precise guidance on R&D or SG&A other than operating expenses will be down quarter to quarter?

No.

Thank you.

Our next question comes from the line of Krishna Shankar with J & P Securities. Please go ahead.

Will your desk top units also up from the December to March quarter and with the launcher next week when cap you expect the first significant out of production revenues in the product line?

I think I caught the question. The first part of the question were desk top shipments up from Q4 to Q1. The answer to that is yes. The second part with the announcement schedule for next week do we expect to see revenue increase in the server portion of our product line. And again I will tell you the answer to that should be yes.

Will we see meaningful revenues here in the June quarter a second half sort of revenue.

From a server standpoint we'll see some volume in Q2 with associated revenues but really the second half before we see anything I would classify as meaningful.

Back though desk top did mobile and desk top ASPs go up.

No the desk top ASP is down slightly as result after larger volume of shipment of lower end products to Asia where we grew a substantial share particularly in China.

Thank you.

Your next question comes from the line of Michael Masdea with Credit Suisse First Boston.

On the flash side can you guys give us an idea of the dense side you saw in the first quarter.

I'll just give you comments on average density. It grew from Q4 to Q1 from 26 mega-bytes per device to 29. Little over 10 percent quarter on quarter. That's actually almost a doubling from a year ago. Relative to unit shipments by mix, I'd rather not get into that.

That's fair and booking trends suggest that's going to continue in that direction or you think it's stabilized in the near term?

No I think we're going see continued density growth as we go forward.

Great. Can you give us an update on your progress with IBM. Any milestones we should look for in the next couple quarters.

You were talking about the joint development agreement with IBM?

Yes.

The agreement was signed at the end of December . We're up and running. We have already assigned engineers to New York as we speak the number of engineers increases by week. We hope to reach a number of approximately around 50 before the end of the year, by the end of the year. We're working extremely well and we're very happy with the partnership and as you may remember let me remind you that the first note at which joint development agreement results in substance and visual relationship is 65 nano meters which we expect that to be of course a year from now. The beginning of that.

Great thanks, guys.

Your next question comes the line of Dan Scovel with Needham and Company. Please go ahead with your question.

Thank you. Another approach on the guidance for break even. At about the 800 million dollar revenue run rate, can you give us a range or at least some idea what gross margins would be at that level?

Bob?

As in the past you know we're not going to give that kind of granularity from that standpoint. Those percentages could move so quickly because of the size of our numbers. So no.

Okay. Also can you -- are you ready to provide I guess any more insight with regards to the new FAS of accounting. Maybe just as basic as do you expect to benefit or not relative to current guidance?

Let me make some comments then Bob can add more to that. You know the new company around which we just signed the MIU we expected to go live and be official in early the third quarter. If everything goes as planned then we expect to share our first consolidated financials at the end of the third quarter. As you can imagine the integration of the two companies and the two business is going to be very challenging and demanding and I expect for at least two or three quarters to have spent significant energy just ensuring that our customers benefit from all of the efforts these two great companies are going to bring to the market place. Having said that, we're very confident that the financial impact on our company in 2004 will be accretive. And perhaps Bob can add to that.

Yeah more I'll call it technicalities since we're the majority owner it will be full consolidation of the financial statements P & L and balance sheet. As Hector said we believe 2004 will be accretive. From the various standpoint and also help our balance sheet ratios.

Okay. Thank you. Good luck.

Your next question comes from the line of Joseph OSHA with Merrill Lynch. Please go ahead with your question.

Hi gentlemen. A few things. First, you've mentioned that there was a lot of market share gain in China. Can you talk about revenue recognition there? Do you have sell through or is this mostly sell end or what is happening there?

Turns out in China it is pretty much a track of sell in and sell throughs. There's almost no differential in those two numbers.

Are you finding it at all difficult to track your product once it's put into the hands of distributors or system integrators there?

It can be difficult. But from our standpoint we actually captured the revenue at the point which we sold the product through. We can track sell through to a certain level in China. It is one of the more difficult places to track some of the smaller details but it generally think we're in real good shape.

Okay. Super. Second question just housekeeping. Bob, you mentioned refund any payments and that impacting the cash. Is that what's reflected in the rather significant decline in this crude liabilities line item? It looks like it went down by about $150 million.

That is definitely -- no actually it's in accrued compensation.

All right okay I see it. But you have accrued liabilities line item that went down from $592 to $455 million. What's the story with that? That seems like that might have had an impact.

Like I said we did have some technology payments we did make. That's where it would be impacted in that line item there. Also the restructuring charges also in the other line item right below it 185. So a lot of movement going on in those categories. But you can see we definitely paid off a lot of bills.

Sure. But for the purposes of modeling cash it would be fair to assume there will be relatively fewer Deltas in the balance sheet in the second quarter.

Yes.

Third and final question. Did I hear you sigh that overall micro-processor units were flat?

No overall micro-processor units were up relatively strongly.

Single digit, double-digit?

Low double-digit.

Okay thank you very much.

Our next question comes from the line of John Barton with Wachovia Securities please go ahead with your question.

Good afternoon. On the topic of flash, Rob just looking at your stilt that the pipeline declined 10% sequentially the fact that your numbers were relatively flat and the fact that Intel's numbers were down I think the number is 29% sequentially that in light of the fact the wireless handset is a relatively new initiative for AMD can you give us an indication as to where you thought you were and the qualification process at the various accounts when they started to Lee act to Intel's price increases? You know obviously the implication being did you lose business to someone else IE Samsung, SD micro and how that qualification process looks like going into Q2 so you can gain more of that share that intel's lost.

I will make general comments I am certainly not going to give specifics relative to a customer. But I will say that I do believe there will be a tightening in high density crash throughout the year. Think our competitor probably did us a favor by taking the pricing cuts they took. And clearly it's created some opportunities for us in our mind. And I think you know we certainly are going to -- we're in the camp for every opportunity and we're in the process of doing that and that should provide us some revenue upside opportunity in the wireless segment. Can you make any specific statements with respect to qualifications things in the pipeline now that could benefit you in Q2 that you couldn't have taken advantage of in Q1. Not customer names but just overall trends.

The only comment I can make on that is there is nothing unusual other than the fact we're moving to 139 meter technology which is also going to qualification with customers. That also goes in line with the fact that for example in 256 mega-bit product now expect to sample a bit before the end of the third quarter. The pressure and the intensity on density and performance is there. And as Rob pointed out we believe that there are only one or two companies capable of delivering the density and performance and expect to see any fairly strong demand in those areas particularly in this high rich feature phones in which we have been participating very strongly.

If anything I would say we expect and we've begun to see an increase in the option of high density parts from AMD including in the cellular phone segment. That is probably the one thing that I've seen acceleration on.

Just last question. You obviously highlight the product introduction next week that we're all looking forward to here in New York. Have we started putting any thought into booking a venue for the desk top version of the processor that we can all look forward to also?

Yeah. I was hoping that I would be able to talk about it on this call but we're still surfacing through venues and the fact that we're trying to find the right venue may impact the date as to which day in September . But we're still on track for September launch.

Thank you.

Your next question comes from the line of Chris Stanley with JP Morgan. Please go ahead with your question.

Thanks guys. Nice quarter. If you list top the Intel call yesterday they said they were willing to go to any length to try to regain the market share. And flash you guys have done a great job there. Have you seen any change in business tactics recently?

No. The answer is no. They're competitive. We don't expect them to do anything but continue to be anything but continue to be that. Instead of focusing on them we're focused on the customer. Trying to make sure that we're really doing everything that our customer wants us to do and frankly I would say that that has been the most significant factor that's impacting our gain in share than anything else in the last few quarters.

And then you know sounds like Intel is leaning towards cutting prices. I am just curious as to what your reaction would be to some sort after price war. I.E., would you sacrifice gross margins to maintain market share or would you try and preserve your gross margins and maybe lose a little bit of share.

That's too much speculation.

I will tell you this. We've worked long and hard to develop important deep and meaningful customer relations. We're going do whatever it takes to maintain those relations to make sure we're well positioned going forward.

Thanks. Just the last question. You guys have done a great job and thanks for giving us the unit and ASP numbers for Q1 for flash and can you give us a sense of where you think units and ASPs go for flash and micro-processors for Q2.

Boy you guys are tough. All I can tell you is what we said in the press release. We believe our revenue is going to be up in flash. I believe based on the fact we said revenues would p up you probably expect units are going to follow. We made the comment that we thought revenues were going to be flat to up. Again a little bit of that can depend on mix but I would expect we will see an increase in AMD unit shipments as they again more closely match the consumption rate you see out there. So in both cases we should see up unit shipments and as a company if you just look at the data we should see up sales. Again I think the big question is you know how up.

Okay great thanks a lot, guys.

Your next question comes from the line of Ramesh Misra with Smith Barney. Please go ahead with your question.

Good afternoon, gentlemen. Can you update us on the status of marea boot in terms of its market acceptance and what kind of purpose is your overall flash is it right now and where do you expect to see it soon.

[Mirabit] market acceptance has been great. [Mirabit] is one of the most successful product technology stories in our company. But it's moving at a pace that you know given by the customers ability to qualify product and put it into a product that then goes into the market place so. In the last couple quarters there has been a lot of activity and a lot of commitments going forward. We expect this quarter to begin to see a significant increase in bit shipment growth on mira bit. And we expect that to accelerate in the second half of the year. Over time and this is over a period of you know a couple of years or so that becomes a technology for our flash memory. It has a lot of attributes. It's ability to have a broad range of operating and it's very low cost technology so we expect it to become very pervasive going forward. And customers are reacting very, very positively to it. As we announced in the last quarter we've had win some in the cellular phone market. Bob do you have anything to add?

No I would just make a comment it was only a year ago we saw our first [INAUDIBLE] we introduced five different products with ten different buy options and focused on different part numbers. So it's become a fairly pervasive design product for us. I think a substantial portion or meaningful portion of the overall revenue for the group beginning just this quarter.

256 mega-bit parts that you talked about on the 1 giga bit by year end are these going be on [Mirabit] or the traditional nor flash.

The 256 mega-bits we talked about having 5 on the [Mirabit] technology.

Okay thank you.

Our next question comes from the line of Adam Parker with Sanford Bernstein. Please go ahead with your question.

Hi. It's Nathan Dupree for Adam Parker. Just to go back to the inventories and ASP question and can you talk about how the processor ASPs might have been affected by that drain and in particular did the level of processors you took back from the channel change in Q1s and I recall you took back some processors in Q4 and I am presuming that might have decreased.

We didn't take any processors back in Q1 relative to inventory balancing. We did sell more sell through in the channel than we plan sod therefore we ended up with a net drain. As I mentioned going into this quarter we're not planning on draining any more inventory. As a matter of fact I'm becoming equally concerned now we have the right inventory in the right mix in the right places and we're watching that pretty closely as we go. So there was no affect on ASP as a result of you know taking back inventories or any adjustment of that nature.

Okay. The other question just going back to the -- Y 5 question. Have you listed who your Y 5 partners are.

We've with most everyone with the exception of one guy. We don't participate in Sitreno offerings. But other than that you know know Vel, broad com all of those guys are key partners relative to going forward. Not to mention we have our own wireless solution that is actually doing reasonably well for us in Asia.

Okay. Last you little thing just on the flash air. The parts that the share that you have been getting in the last quarter as a result of the Intel price increases, I am just trying to understand how sticky those gains might be. Are they propriety design ends or the kind of things that can be swapped out at manufacturing time.

In the flash business which is one of the great benefits of it is that a lot of these companies a lot of these customers particularly in the customers particularly in the communication side have unique architecture and interfaces that require some level of customization in the product. So it's very difficult to just completely swap out totally. And so that's one piece. The other piece is that as Rob pointed out the relationships we have built with the customers and that we have been working with them for a long time is not being just in the last two quarters are really deep and strong. And I believe that though gains we've made are have a high sticking coefficient. And personally I think have a lot less to do with any pricing by competition and a lot more to do with our relationship with the customer.

Okay. Thanks.

Operator, we're going take two more questions.

All right. Our next question comes from the line of Eric Rothdeutsch with Friedman Billing Ramsey. Please go ahead with your question.

Can you give an idea how the relationship is going to with IBM in terms of accessing some of their designers to help resolve some of the current issues that you have with the SLI process. And I was curious about what your mix to Athlon versus Durons were during the quarter and what you expect that to look like during this quarter?

I am going to ask Rob to comment on the second part of your question but let me comment on the first one. Our -- if you look at where we are relative to learning in cumulative learning of Silicon area versus where we are in cost performance et cetera I am not aware of any issues that we're needing any kind of special help. We're pleased with the relationship with IBM. We're delighted to have them on board as a partner to jointly develop technology at 65 nano meters. We're benefitting a lot from that interaction as well as they are benefitting a lot too. We're pleased with the ramp. As a matter of fact, today's yields and cost and quality and all the parameters of the product wi are very happy with. We are looking forward to beginning the engineering and ramp of the Athlon 64 part here in the near future. Because being relative [INAUDIBLE] we expect similar in the performance in terms of quality yield reliability and costs. Rob, on the other issue, do you want to comment on?

Generally avoided sharing a lot of data relative to mix of our product. I can tell you that there will be a decreasing portion of our overall product related to the balance of year.

The relationship you have with Av-Net net that they'll be reselling the Duron product do you expect to phase Duron out over the next couple quarters? How is the relationship work with Av-Net is that a profit sharing arrangement?

I won't be getting into specifics of business relationships with our partners. I will tell you however that Av-Net is a very good partner of ours. They've done a wonderful job for us helping drive some of our business at particularly at the low end with smaller customers and merging geographies around the world. They are the primary distributor of the Duron product into the market place and will continue the to be about. That relative to the details arrangement I am not going get into that.

Good enough. Thank you.

Our next question comes from the line of Michael Cowen with Pacific American securities. Please go ahead with your question.

Hector, seem like a lot of the success of -- success our failure of your move to 64 bit processing depends on your ability to get the software community to develop 64 APS. Can you talk about what you are doing there or have been or doing in the future.

Sure. And then I will ask also Rob to comment on that. Let me start with the operating system side. You know that microsoft has already announced strong support for the AMD Athlon 64 architecture.

I did see the press release just last week. Or this week.

And similarly we have been working out for quite a long time with the min us community which is strongly on board with the support of you know 64 bit environment also. Let me tell you that any other significant companies are seriously considering using the platform for their 64 bit also. Hopefully as we can learn more we can be more public on that. In terms of the applications, I hope that you participate in our launch next week and be able to learn you know firsthand a lot of the effort and support that's going into that side of the equation. And I don't know how much of it Rob is more familiar with how much of it is probably knowledge that we can talk about in terms of applications. But we're building a very strong momentum in that area and I believe it's -- by the launch date comes we are going to be so significantly better prepared from that sort of support than we were when we launched previous architecture. So in building the infrastructure to support the AMD Athlon 64 technology, we're very pleased and excited about the outlook. Rob, is there some specificity on the application side?

I think we've got over 100 different partners who have publicly signed up in support of the Athlon 64 product offerings. Many of those will be at our partner pavilion at the launch next week so I hope you can join us there. There will probably be some additional partners announces at are around the launch as well. well. Maybe another thing I can say relative to the market place as you know Michael reports the AMD Athlon 64 was chosen then best PC processor for 2002. Here we are nine months before announcing the product to the market place and already won the best processor in 2002 and 2003.

Okay. Thanks a lot. And we're all looking forward to next Tuesday.

Okay thank you all for joining us. We look forward to seeing hopefully a large number of you in New York next week. Take care.

Ladies and gentlemen, that does conclude your conference call for today. You may all disconnect and thank you for participating.