超微半導體 (AMD) 2003 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the AMD Q3 earnings announcement conference call. (operator instructions) As a reminder, this conference is being recorded Thursday, October 16th, 2003.

I would now like to turn the conference over to Michael Haas, the Director of Investor Relations.

Please go ahead, sir.

Thank you and Good afternoon, everyone.

The format of the call today will include prepared comments followed by Q and A. The participants are Hector Ruiz, our President and CEO, Robert Rivet, our CFO, and Henri Richard our Senior Vice President of World Wide Sales and Marketing.

This call is a live broadcast and will be replayed at www.amd.com and www.streetevents.com.

Telephone replay is 800-633-8284.

Outside of the United States the number is 402-977-9140.

The access code for both is 21161730.

The telephone replay will be available for the next 10 days starting at approximately 6 p.m. pacific time tonight.

We are planning purposes I'd also like to take this opportunity to remind you that we will be hosting the 2003 Analyst day, the morning of Thursday, November 6th in the Sunnyvale headquarters.

If you have not RSVP please contact either Ruth or myself.

Our contact information is on today's press release.

Before we begin the call I would like to caution everyone we will be making forward-looking statements about management's goals, plans and expectations.

As you know the semiconductor industry is generally volatile.

Our product and process technology development projects and our manufacturing processes are complex.

Current worldwide economic and industry conditions make it especially difficult to forecast product demand at this time, because our actual results may differ materially from our plans and expectations.

I encourage you to review filings with the SEC where we discuss in detail our risk factors and our business.

You will find detailed discussions in our most recent SEC filings, including the annual report on form 10-K and our second quarter form 10-Q.

With that, I would like to introduce Hector Ruiz, AMD's President and CEO.

Thank you, Mike.

I will start by reporting on strong progress to profitability and then I'm going to ask Bob to disclose the financials from the past quarter and our prospects for the fourth quarter.

And once again, I will close with comments on our longer-term prospects going forward before taking your questions.

Our progress this past quarter was an excellent example of what I hope you would recognize as a new AMD.

At AMD that will consistently demonstrate a winning strategy of customer innovations, innovating with customer needs in mind, continued world-class design and manufacturing performance and a strong discipline of operational flexibility.

I would like to take a moment to comment on each of these as a way to put our third quarter in a proper context for you.

Starting with operational flexibility.

You can see that we are putting in place a strong cost-management discipline, holding operating cost in the quarter to $984 million.

Please note this includes the cost previously associated with Fujitsu Flash memory operations and now consolidating in our global Flash business.

In short, we managed to hold our baseline business to Q2 cost levels while both absorbing our new operations from the consolidation of access of the Flash side and growing the top line significantly in both of our core businesses.

Going forward we expect to capture even more efficiencies as we integrate the major elements of our Flash business.

We finished the quarter with over $1 billion in cash and now begin the strongest quarter of the year with our most competitive product portfolio in recent history.

We believe after our aggressive value chain inventory management in our process of business that we have arrived at steady levels.

We have improved the stability in to our value chain, which will allow for tighter efficiency and more realtime responsiveness to market dynamics.

In design and manufacturing, AMD continues to demonstrate world-class operating performance in both our Flash and processor business.

In September, we sampled a highest density NOR flash memory product to date at 512 megabit expansion flash memory device.

Once again we shipped a record number of units out of Flash facilities in the last quarter and we are poised for continued demand growth in the coming quarter.

In processors, we continue to demonstrate world-class manufacturing performance in our resident facility and are particularly pleased with our SOI yields.

As a result AMD 64 processor (inaudible) will exceed 50% of the total start doing (inaudible) in the first quarter of 2004.

We continue our steep ramp to 90-nanometer technology, remaining on track for production wafer starts in the first half of 2004.

I mentioned our strategy of customer centric innovation and this approach continues to produce a strong drawing portfolio of customer relationships and improved top-line performance across our businesses.

Customer acceptance of our Spansion brand of Flash memory solution has been outstanding.

In fact, in our first quarter of operations the Spansion brand is now the leading, NOR Flash memory brand in the world.

And we are well positioned to achieve our strategic goals of being the number one provider of Flash memory solutions worldwide.

Asian markets were healthy this past quarter leading to strong wireless segment growth and solid customer demand for our high-density Spansion products and solutions.

We believe Spansion devices are now in roughly 40% of all the cell phones shipped worldwide.

More specifically, we continue to see record growth in unit shipments of devices based on our innovative MirrorBit technology as we expand its footprint beyond the original success in wireless applications.

In our processor business I'm very pleased to report that we generated operating profit in the third quarter based on increased demand in each of our major businesses in all geographic regions, as well as an improved product mix.

Success in our processor business is in large part a reflection of the strength of our AMD (inaudible) franchise.

As an example of continued success with enterprise customers, H&R Block, a Fortune 500 corporation announced plans to standardize 15,000 plus units desktop platform on Athlonxp(ph) systems from Hewlett-Packard.

Demand for AMD Athlon processors continues to exceed expectations among OEMs.and partners.

For instance, IBM continues its support by selecting our AMD Opteron 246 processor for its E-Server 325 product line and announced availability of their DB2 database for the AMD 64 platform.

Microsoft released a better version of Windows XP 64 edition, designed specifically to support the AMD 64 platform.

Los Alamos National Laboratory in the University of Utah selected AMD Opteron processor as basis for their next-generation super-computing cluster system.

In China, the Dawning Information Industry Corporation announced plans to launch a comprehensive series of AMD Opteron processor based 1 and 2-H servers.

Oracle announced plans for its 64-bit version of Oracle9i database on the AMD 64 platform.

And we are pleased Sun Microsystems recently announced plans for Java support for the AMD 64 platform and disclosed plans for developing a version of their Solaris operation system for AMD 64, as well.

In the first two quarters of availability, AMD Opteron processors continue to outshift our main competitors 64-bit processor by a wide margin.

In September, as promised, we introduced the world's first and only Windows XP compatible 64 bit PC processor family our AMD Athlon 64 processor.

The launch was supported by over 100 third party hardware software partners, Fujitsu, Fujitsu Siemens, Hewlett-Packard and NEC Packard Bell presented systems based on the new processors and all of them will be shipping in the fourth quarter.

Perhaps as exciting was our introduction of AMD 64 FX brand designed to introduce a new wave of innovation around what we call the cinematic computing experience.

The AMD Athlon 64 FX processor has stirred among gamers, enthusiasts and digital content creators and it represents a continued commitment to the discipline of creating and sustaining the strong premium product brand at AMD.

First with AMD Opteron processors, then with Spansion Flash memory and now with the AMD Athlon 64 and Athlon 64 FX processors.

The AMD Athlon 64 processor family is a totally differentiated product and represents a great value to our customers and their customers.

We are seeing increased confidence among our growing portfolio of customers about AMD and our leadership role in driving the pervasive adoption of 64-bit computing around the AMD 64 platform.

In fact, we shipped tens of thousands of AMD 64 processors in the third quarter and we are confident that this will go out to hundreds of thousands of processors in this quarter.

We are taking our rightful place as the leading NOR Flash brand in the world.

We are taking our rightful place as the only supplier of tomorrow's industry standard 64-bit processors.

At this point, I would like to ask Bob to review current quarterly financial results.

Can upon bob.

Thanks, Hector.

A year ago we outlined our operational flexibility plan for the investment community, an ambitious and aggressive plan to get AMD back to financial stability.

Since then we have made significant progress both reengineering our operating model and investing in areas that build sustainable, competitive advantage for ourselves and our customers.

Our third quarter results are a clear demonstration of our progress in these areas.

I'd like to remind you that AMD began consolidating FASL LLC financial results at beginning of the third quarter.

The minority interest reflected in our statement shows Fujitsu 40% share of the new subsidiaries financials and our second quarter 2003 numbers did not include FASL LLC.

Starting with top line, our third quarter sales were $954 million, up 88% compared to last year and up 48% compared to the second quarter of this year.

Top line growth was a reflection of increased demand in each of the major businesses in all geographic regions.

The combination of top-line growth and our operational flexibility measures resulted in a $30 million operating loss in the quarter, down 76% from the second quarter.

Gross margin was 34% for the quarter, flat compared to the second quarter.

Consistent with our prior guidance, our total operating cost structure was $984 million in the third quarter.

Our net loss for the third quarter dropped sharply to $31 million or 9 cents per share and 88% reduction from a year ago and 78% reduction from the second quarter.

We generated positive cash flow from operations this quarter and grew third quarter EBITDA to $277 million, greater than 100% improvement over the second quarter performance.

Now, switching to business overview for the quarter.

I'd like to start with computation group computational product group or CPG, which consists of our microprocessor and chipset businesses.

Third quarter sales and CPG were $503 million, 91% increase over the same period a year ago and 24% increase over the second quarter.

Increased sales were due to solid growth across processor product lines and improved product mix and increased sale to our largest OEM customers.

We shipped more units and improved ASP significantly compared to the second quarter.

As a result, the CPG business, you know, was profitable in the third quarter with an operating income of $19 million.

In the third quarter Flash memory sales grew to $424 million, up 125% from the third quarter of 2002, and up 101% over the second quarter.

This performance is a result of the consolidation of FASL LLC operations and the strong organic growth.

The memory group's operating loss was $49 million in the third quarter.

As Hector mentioned, devices based on our MirrorBit technology are becoming a bigger piece of AMD's Flash memory portfolio, achieving record growth in the third quarter.

Turning to the balance sheet.

Cash balances ended this third quarter at over a billion dollars, up $370 million from last quarter.

This includes security of $238 million of new capital leasing financing in the quarter.

Capital expenditures were $138 million in the third quarter compared to $103 million in the second quarter.

Accounts receivables days sales outstanding were at 54 days, up slightly from second quarter levels of 52 days.

AMD head count at end of the third quarter was approximately 14,400 up 2700 people from the second quarter due to consolidation of FASL LLC operation.

Now, I'd like to discuss the outlook.

AMD believes that sales in the fourth quarter will increase based upon the following.

Microprocessor sales are expected to increase based on normal industry seasonality and growing demand for the company's enhanced portfolio of AMD 64 microprocessors.

Flash memory sales are expected to increase based on normal seasonality, and increased customer acceptance of MirrorBit technology.

AMD anticipates this fourth quarter operating cost to remain at approximately $1 billion, depending on volume and mix.

In summary, we are very pleased with our progress in the third quarter as we increase sales and continue to tightly manage our cost structure.

With improving fundamentals going forward, we are pushing to return to sustainable profitability as quickly as possible.

Now I turn it back over to Hector.

Thank you, Bob.

Over the past few quarters we have been beating a steady drum on the significant and very difficult disciplines that are the basis for what we call the new AMD.

First, establishing an operationally flexible business model.

Our cost management performance is a demonstration of that discipline.

Second, advancing our world-class design in manufacturing capabilities.

Our AMD 64 platform and leading edge Flash memory technology are demonstrations of that discipline.

And since our continued world class manufacturing performance in our 5, 25 and 30, as well as assembly and test sites in Singapore (inaudible) Bangkok and Sujo.

Third, delivering customer centric innovation.

Our processor, Spansion Flash memory and AMD Athlon 64 and 64-FX brands are a demonstration of that discipline.

But perhaps a more important demonstration is the growing portfolio of top-tier companies who we are honored to say are choosing to partner with us as we move to a leadership roll in the markets we choose to serve, Which with acquisition of the Geode processor family of integrate solutions helps us expand our exceeded fixed footprint into new growth segments including sink lines, smart displays and set-top boxes, among others.

At AMD we see our role in the industry in very simple terms.

We're here to work with our customers to help them deliver on their dreams, to help them create differentiating value for their customers and to create sustaining successful businesses.

We know that our customer success is our success, and that this discipline has been missing in our industry.

With our commitment to the discipline of customer centric innovation, we believe we are bringing it back.

We are a new AMD and we are very proud of the progress we have made and over the leadership opportunities we have created with and for our customers.

I want to recognize and thank the thousands of AMD employees who continue to do millions of amazing things everyday to transform our company into the earnings machine that we're working so hard to become, the new AMD.

Their rewards and yours are soon to come.

We hope you can join us on November 6th, either in person in Sunnyvale or the Web for our annual financial Analyst briefing where we will look forward to sharing more of our addition of the future of the semiconductor industry.

We thank you for your attention and I would like to turn back to Michael Haas for Q and A.

Thanks, Hector.

Let's start the Q and A, please.

Thank you.

Ladies and gentlemen, if you would like to register a question, press the "1" followed by "4" on your telephone.

You will hear a three tone to constitute to acknowledge your request.

If your question has been answered and you would like to withdraw your registration arbitration press the "1" followed by the "3".

If you are using a speakerphone, please lift the handset before entering your request.

One moment please for the first question.

Our first question comes from the line of John Barton of Wachovia Securities.

Please proceed with your question.

Good afternoon.

Thank you.

Hector, it seemed like you went out of your way in your prepared comments to make the comment that, you know, Spansion is the number one supplier NOR Flashand then well positioned to be the number one Flash supplier worldwide.

How should I be interpreting that with respect to, you know, NAND Or NOR?

Does the company get into NAND Flash?

Do you think NOR out grows NAND or am I trying to read too much into the statement?

I probably guessed all of the above.

But let me be more specific in the following sentence.

We know that in the NOR Flash side of the house, just based on all of the reports that have come out already that we are the number one NOR Flash brand already.

And expect to continue to stay that way.

We are committed to the Flash memory business.

We think the storage solution that Flash provides, are incredibly helpful and pervasive to so many products, not only wireless, but across a huge plethora of applications.

And if that demands some changes in our technology and product strategy, we are alert and prepared to make those changes.

But at this point in time, we do not plan to make an announcement relative to anything beyond NOR.

OK.

Lets dig in further into the numbers for expansion, and probably for Bob.

You know looking through it, it looked like $49 million operating loss and if you kind of reverse calculate your $25.4 million minority interest, you know, take the 40% backward calculations that would imply a net loss of $63 million or non-operating increase of $14 million there.

Am I looking at those numbers right?

If so, where is the $14 million coming from, Interests expenses et cetera?

Yes, you got the detail.

The Minority interest is in full P&L, which would include interest expense, taxes, et cetera.

They are also is cross-charges between the parents that will take place.

Obviously those get eliminated, but they are in the FASL LLC.

So there we will get exactly we would be able to take the operating income times 40% and get the number.

It will be always relatively close, but not perfect.

And last question.

If I - Could you just comment on Flash ASP?

You know, I will ask Henri Richard, our Overall Sales and Marketing executive to make a comment.

But, I'd like to say that the market has become strong and as a result of that, prices have stabilized.

Our Flash memory ASPs continue to remain strong, actually grew quarter-to-quarter and it is across all regions.

And growth driven by mix?

Absolutely, particularly driven by high-end devices and MirrorBit technology.

And if you were to look at constant density quarter-on-quarter, you know, basic slight erosion there?

There was a slight erosion in density but that is due to the addition of the Fujitsu business to the overall operation.

Great thank you very much

Fujitsu had a very strong presence in the embedded market space.

Thank you.

The next question comes from John Lau of Banc of America Securities.

Thank you.

In terms of the Athlon 64, I was wondering if you can give us more color on how the Athlon 64 designs are going on a geographical basis and also how it is positioned for the higher-end corporate market?

So in other words where is the adoption rate growing the faster before the for the highs for the new high-end Athlon 64?

Thank you.

I would like to maybe just make a -- some general comments and ask Henri again to comment further.

First of all we have made assumptions in the introduction of Athlon 64, which of course is at the highest end of the performance of the client side, and as anticipated, you know, our demands given the assumptions we made relative to all the customers, and we under-anticipated demand there.

The reception and acceptance of the client has been very strong.

And as a matter of fact, we are ramping as fast as we can to try to improve on that for this quarter.

Henri, could you a little elaborate?

Sure.

John, we have a demand that is really across all regions, but principally driven by regions where you have Pc enthusiasts and gamers to start with, regions like Korea, Europe, the U.S., Japan.

As far as the corporate market, and the partners have announced platforms, they have essentially announced consumers' platform for the time being.

We expect to see enterprise platforms announce sometimes in the beginning of 2004.

So, a lot has to do with the highest performance you think utilizing the graphics for the gaming? (inaudible)

You have to remember, that this is the fastest 32-bit platform in the marketplace.

And, of course, today most of the applications are still 32-bit.

However, we've had support from numerous software vendors, particularly in the gaming space that have already announced and pre-announced availability of 64 bit version of their leading games for the Christmas season.

So, it's not only, you know, high-end graphics performance, its high end CPU performance, it is memory bandwidth and all of the above that drives the really the cinematic computing experience that if you have ever experienced, it is second to none on that platform.

Great.

Thank you.

The next question comes from Michael Masdea of Credit Suisse First Boston.

Thanks a lot everbody.

And I would like the new AMD better than the old one.

Keep it up.

In terms of pricing first you talked about empty your strength and pricing is that on an apples to apples basis or is it more of a mix shift?

Again, if Henri wants to add at the end of my comments is that we have worked very hard with our customers to try to ensure we understand exactly what they expect from us, and that we can deliver the mix that they would like to see from us.

And in the last quarter in particularly, our customers have been pushing us up towards the performance side and we have been responding and as a result of that, the mix in the quarter was richer than in previous quarters and as a result it improved ASP.

Hector, and just to add that we have obviously introduced with the Athlon 64 FX and Athlon 64 products new price points in the marketplace, where AMD traditionally didn't participate and that of course helped the ASP.

Thanks, and speaking of pricing for a second, there is always the concern that when your large competitors looses share in flash but prices can go south east, seeing that or is that not having traction or have you not seen that yet?

Flash market continues to be very competitive.

There are a number of players besides just number one and number two.

We haven't seen the rather deep and broad price erosion that we saw a year ago, but they are stabilized.

However, it is very competitive, you looked at pricing per bit, it continues to go down.

Fair enough, on the manufacturing side, any update on your thoughts on manufacturing partnerships for 300 millimeter and what are your thoughts for '04 in terms of need for 300 millimeter?

In '04 we don't anticipate needing 300 millimeter.

We think that it's their cross-over point for us at least in 300 millimeter will be at the 6500 nanometer node, which means that we need to have a factory in place, ready to ramp in 2005 for production in 2006.

As far as the partnership and our plans, as I said before is we will be able to be public, as to how are going to that and the details surrounding that before the endo of the year.

Right, thanks and final questions from the cross-restro side, obviously impressed at what you guys have done so far but we always want more, just curious as to the consolidation of said before, we will be able to be public as to how we're going to do that and details surrounding that before the end of the year.

Great.

Thanks.

Final question on cost structure side.

Obviously impressed with what you have done so far.

We always want more.

Just curious as to what consolidation of FASL LLC, any more room there now you had a little time about this to take a look at the overlap?

Yes, actually it is 90 days since the transaction took place.

We have actually spent the first 90 days making sure we can get the team completely integrated and operating.

We have found some synergies and some opportunities which will be executed in the next six months to take out those redundancies, in a lot of cases implementing best in class from the two different partners as we pull it together.

Thanks a lot.

Congratulations.

The next question comes from Krishna Shankar of JMP Securities.

Yes, nice quarter folks.

When we strengthen ASPs and the better performance in profits was driven both by desktop and servers, can you give us some sense or whether notebooks and service contributed materially to the increased revenues in ASPs?

I won't comment on the nexus as to what each section contributed to ASP mix.

I do want to point out that in the quarter that just ended we had the largest shipment of mobile units into the marketplace.

There is definitely a healthy uptick on mobile segment of the market.

In mobile are you seeing acceptance of the Athlon XP mobile both in the full-size notebook as well as thin and light, Can you talk about efforts in the faster growing thin and light notebook market?

Sure.

I am going to ask (inaudible) to comment on the 64 mobile portion of it.

Let me just make a general statement on mobile.

I think we've been fortunate to have a strong offering that has resulted in record units in this quarter for mobile shipments that based on Athlon XP.

It turns out to be the product and technology that customers are looking forward on the Athlon 64 size has gotten pretty exciting.

We are anticipating a very strong reception for that.

Absolutely, Hector.

We have to date more models of thin and light notebooks based on Athlon XP base machine shipping in market over 10 different systems in this quarter and we are seeing strong demand for these products.

They provide a very competitive alternative to our competition infrastructure.

Moving into next year, we're seeing demand for the same product based on Athlon 64 core that will be available in the second half of the year.

Okay.

My final question is Hector, you said in Q1 of '04 you expect 40% of your wafer starts to be Athlon 64 based.

When could we see the cross-over between Athlon 64 units and Athlon XP units next year?

Let me just correct a couple of numbers.

As we expect in the first quarter that half of our wafer starts will be on the AMD 64 architecture.

That is a mixture of servers, workstations and clients and we anticipate given the projections that we have, 60% cross-over will occur by end of next year.

Thank you.

The next question comes from Ben Lynch of Deutsche Bank.

I am second Michael's comments on the new AMD versus the old AMD.

Could you may be comment please in the flash growth and give us a feel for the organic elements of that market share gain element of that and also you said that AMD and Mirror Bit products will be on top of the seasonal growth you are expecting in Q4.

Could you give us a rough feel for how much they may contribute to the growth you expect in Q4, please?

I do have a follow-up.

I may have missed part of the question.

I was trying to answer what I thought you asked.

Please ask again.

But I think that the organic growth that means the original memory Flash business experiences healthy growth quarter-on-quarter and year-on-year.

When you have consolidated FASL numbers, it is even much stronger.

I'm not sure I got the balance of the question.

So, you don't have a number for the organic growth versus consolidated growth?

We don't think that is necessary to hand out at this point.

We're just one company.

How much do you think you picked up share wise in the third quarter?

Don't know the numbers yet.

We know we did only based on the growth and the comparison to the competition that we feel confident, we believe we picked share.

And then on the other question, please, I will try.

What you think might be incremental Q4 contribution from AMD 64 and Mirror Bit, you highlighted them as being on top of seasonal growth you expect.

In Autumn, we are not going to give the granularity on it.

I will make a broad statement.

As we ended the quarter, our Mirror Bit contribution was already in double digits in terms of revenue and growing fast.

And I also mentioned in my remarks, we're going from third quarter shipping tens of thousands of AMD products to hundreds of thousands in the fourth quarter.

That gives you some idea.

Thank you.

Next question.

Christy -

The next question is from Joseph Osha of Merrill Lynch.

Hi, guys, congratulations and well done.

On the microprocessor business obviously ramping the 64-bit architecture is additive to ASP.

If we leave that out for a second, looks like very good things were happening with existing Athlon, as well.

Leaving 64-bit out, were ASPs up for the 32-bit line of products, as well?

And also I am curious did Duron tail off a lot this quarter and did that contribute to some of the strength in ASP?

To the first part of your question, the Athlon XP brand continues to derive more value for us and is seeing a shift in customer demand for the higher portion of the offering.

We had increase in that proportion of the product line independent from the acceptance of the AMD Athlon 64 brand.

For the second part of your question, can you precise exactly what you are looking for?

I guess, we understood you were getting end of life in Duron, is that true?

Because, if you were, that would obviously tend to have a positive impact on ASP, as well.

The Duron product line is really a target of the emerging market.

At this point of time, it represents a small portion of our product offering.

OK.

Now, are you willing to make some kind of rough comment in terms of what unit volume from microprocessor did quarter-on-quarter?

No, not at this point in time.

We'll pass on that.

OK, Thank you.

The next question is from Quinn Bolton of Oppenheimer and Company.

Congratulations on the strong quarter.

First question on just the MPU business.

You talked at the end of last quarter and I think in some of your public appearances during the quarter, that the channel inventory distribution was about four weeks.

As wanted if you could give us an update on that ?

And can you also comment on how you feel about the mix in the distribution channel heading into the stronger fourth quarter and then I have got one follow-up?

First, our mix in the channel has gone up and continues to reflect the value of the brand and our channel inventory at the end of third quarter was less than four weeks.

Great.

OK and then the second question just on the Flash business it sounds like things may be getting this tight in the market.

Can you comment on lead times and overall capacity utilization or capacity issues?

The demand for Flash is strong, and particularly strong on high-density, high-performance part of the equation.

That happens to be an area where AMD is well positioned for a couple of reasons.

One is we have a leadership product, as mentioned earlier when we introduced a half gigabit or 512-megabit product.

Also, Mirror Bit is being much more rapidly accepted in the wireless segment than we had anticipated.

So, that's also contributing to that.

The other reason we are well positioned is the manufacturing side in our joint venture with Fujitsu, turns out to be each company contributed a phenomenal asset on the Fujitsu side was a factory called JV 3 which is a state-of-the-art factory that is not fully utilized.

As a matter of fact, there is significant capacity expansion capability existing in the factory.

And then we have 525 in Austin, Texas, which is also a state-of-the-art facility that is rapidly converting to leading edge-technology and as a result, improving its ability to deliver high-volume, high-performance product.

So I think despite the fact that the demand is tight and growing, we see that as a opportunity for us.

And any comments on where lead times are?

Where are they on absolute basis and whether they are stable or stretching out?

Let me speak only for AMD.

We are seeing our lead times being stable and we are working very intimately with customers because demand is not only is it robust, it actually is very dynamic and tends to move from one product line to another very fast.

It is a lot of intimacy required and we believe we are doing a good job of that.

Thanks.

The next question comes from Andrew Root of Goldman Sachs.

Thank you very much.

Had a question regarding a billion dollar operating cost assumption.

What type of unit growth can that support before you would have to scale that up?

What is your base line assumption there?

This is Bob.

I'm probably not going to answer from a unit perspective, but obviously I will kind of give you a little bit of granularity.

Operation flexibility was about trying to change the mix between variable and fixed.

Clearly the two businesses are different.

The microprocessor is more variable than the memory business, so it kind of depends on the mix assumption of both.

So, as each of those grow at different paces, both have different fall through and different incremental cost required with both businesses.

Do you guys have -- are you willing to share at least assumption for what you think the PC-unit end market grows in the fourth quarter in terms of unit?

All I can say on that is normal seasonality is someplace in between 10 to 15% expansion between third and fourth quarter.

It appears that is the kind of quarter we are looking at from an industry-perspective.

I'm assuming you expect to pick up share in the fourth quarter?

We always try.

That's fair.

For the microprocessor business last quarter, 24% growth, obviously was terrific.

We're guessing about a third came from ASP, is that close?

No.

There is some ASP involvement, but I am not going to comment on that, but that is not close.

OK.

Can I add something to the comment before.

It is important as we anticipate what our cost might be in fourth quarter.

Part of the mix issue that Bob referred to has to do with how we do Flash.

We borrow Flash business is what we call a multi chip module products and these are products where we actually put two or three, four sometimes dye on one package.

Therefore, the cost is associated with how much of that you have to acquire to be able to make the product.

We are sensitive on mix and as Bob pointed out, the processor Flash mix has got quite a different cost model.

So, I just want to underline that the mix issues can make that cost very -- significant amount plus or minus a significant number.

Makes sense.

Do you know what percentage of the product is in multi-chip package at this point?

Not off the top of my head.

Final question.

When the Athlon 64 was launched at the launch event, there was suggestion that there might be some other key OEM channel partners that would eventually become involved with this decline anticipating that particular event.

Should we expect other announcements over the next quarter or so?

We're working hard with all the major computer makers to, you know, to launch products.

I think what you are seeing and as we reported in my remarks earlier, we got some fairly heavy weights already launching products this quarter and others anticipating to launch in the first quarter.

There is not a single computer maker that is not working with us in trying to see if this platform makes sense.

All of them actually have serious plans and committed to develop some sort of a platform that they can launch in the early part of 2004, except for one.

OK.

No, That is Great.

Thank you.

Our next question comes from Ramesh Misra of Smith Barney.

Hello, Good afternoon, gentlemen.

Could you provide some milestones on the 90-nanometer plans for the microprocessor in terms of what proportion of wafer starts can we expect by next year?

I have a follow-up.

We are going to let the market drive that part.

That's going to be the continuation of how we exploit AMD 64 family of products.

And, as I mentioned earlier, we expect to begin and as a matter of fact are running right now -- we call it engineered runs.

We are very happy with where we are and expect to begin production starts by the middle of next year on 90-nanometer.

OK.

And then for the sub-3-pound notebook category, when do you expect or anticipate having product for that?

Would that come after the 90-nanometer transition?

For that segment, it requires 25-watt and below.

We will have to be moving to 90-nanometer technology to provide a product based on the AMD 64 architecture.

So, that would be second half of '04 and later phenomenon?

Correct.

Thank you.

The next question comes from Adam Parker of Sanford Bernstein.

Can you tell me what the impact on the revenue from the National Semi acquisition was?

Is that included in the hundred million you got in the competition product group growth?

No revenue in the current quarter.

That will not be classified.

That is the other category segment reported.

OK.

Trying to ask an earlier question a different way.

You recently guided to 180 million in Flash from JV.

Did the actual revenue from the JV exceed that or original forecast accurate?

It was within the zone.

I'm sorry.

It was within the zone.

Within the zone, you said?

Yes, close to that number.

OK, I was a bit surprised that your gross margins didn't improve more sequentially given the processor growth and comments about improved mix in pricing.

Is this kind of given the processor growth and you kind of improve some pricing so trying to figure out just related to more cause from the JV's Flash business or can you just tell us what were the factors on the margin sequentially?

If you were listening before, both businesses, the cost characteristics are very different.

The memory business and microprocessor business.

Obviously by now we have effectively 50/50 between the business.

Before we were two-thirds and one-third.

So those are the dynamics that take place in the quarter and will take place in going forward as you model which business growing faster or slower.

Right.

Bob, you guys recently said 180 in revenue from FASL.

And if you assume the same call structure you eluded to looked like about $135 million in calls.

It has a bit of drag, I think about 250 basis point drag on your margins.

But if you look at the organic growth from the other businesses, it implies more margin expansion, just trying to match up those two thoughts.

Can you help at all there?

No.

Not at this point.

All right.

Thanks.

The next question comes from Hans Mosesman of SoundviewTechnologies.

Thank you.

Microsoft apparently yesterday pushed out the introduction for Windows XP support for the AMD 64.

What is the impact of that push-out if you can confirm it?

First of all, there is no -- right now we are working with Microsoft very closely to continue to stay on track with their release of the software needed.

I don't know if there is anything substantial to add beyond that.

No, expect to date consumers and enterprise that are looking at AMD 64 platform and doing it because they want 32-bit performance today.

It is well understood the operating system will be available later in 2004.

Frankly, a delay of one or two months doesn't change the value proposition for the consumer and the enterprise.

OK.

And one follow-up.

Can you comment on inventories that you see out there in the PC space in the channel?

Did you mean inventories from -

Microprocessor point of view, yes.

As Anre pointed out a bit earlier, we have been pleased with what we have managed that and we are happy with the current situation.

We believe we call it stable.

We have less than four weeks inventory in the channel.

We are happy with that and intend to manage it tightly and keep it that way.

Thank you.

The next question comes from Erik Rothdeutsch of FBR.

Most of my questions have been answered.

Just one question.

Last quarter you had given guidance for the Flash memory revenue from FASL would be $180 million.

Can you say how you do relative to the guidance for FASL flash sales?

The question was asked before.

We -- that was relatively close.

Okay.

Thank you.

The next question comes from Michael McConnell of Pacific Crest Securities.

Yes, regarding the comments, which were helpful on the PC side for fourth quarter looking at industry unit growth attend of 10 to 15%.

Could you just characterize, may be from industry outlook what you would expect on the Flash side, what is typical normal seasonality on the Flash side for fourth quarter?

Fourth quarter is traditionally very good quarter for cell phones.

And as you know, the wireless space drives a lot of demand in NOR Flash market.

We expect to see solid demand from that segment, probably double digit similar to what we expect on the PC side.

OK.

Given your capacity you have currently, if we were to look at double-digit growth in PCs, even Flash, do you have enough capacity right now, do you feel looking through 2004 to meet the need of the market should it continue at this pace?

I believe looking out into 2004, we are well positioned to address capacity and growth in the market that could occur.

In the two angles for that on the microprocessor side is because of the migration in technology from 130 nanometer to 90-nanometer gives significant boost in our capability for next year, particularly in the second half.

The same is true in Flash with a double-barrel there because one, we are aggressively moving to leading-edge technology in Flash.

At the same time, as I mentioned earlier, we have underutilized leading-edge factory in Japan where we could expand capacity rapidly.

OK, thank you very much.

The next question comes from Tom Thornhill of UBS Warburg.

Thank you.

The microprocessor performance was outstanding, up 24%.

Can you give us a little idea which was the larger driver there, units or ASPs?

Or were units and ASPs both up about the same or one larger, more than the other?

You really want to know the granularity of that.

I can tell you both contributed to revenue being up, growth in unit and growth in ASPs.

But, you are unable to disclose which was the larger contributor?

That is correct.

Thank you.

The next question is from Chris Stanley (ph) of J.P. Morgan.

Thanks, guys.

Most of my questions have been answered.

Just a couple.

Can you give us a sense of mobile versus desktop processors?

Could you repeat the question.

Sure, if you could give us a sense of your mix of on mobile laptops versus and desktop processors?

The percentage?

We normally don't do that.

We have a healthy segment of our shipments in the mobile space and as I mentioned earlier, we did accomplish record shipments last quarter.

: Sure.

And then sounds like Flash business is tightening up.

Do you guy have plans to raise pricing there?

You know, we believe strongly that we are making a lot of very strong commitments with our customers and product plans that go beyond this quarter.

We do not anticipate changing that philosophy.

You don't have plans to raise prices?

In this programs, we are already working with customers.

Okay.

Thanks.

Two more questions, please.

Certainly.

The next question comes from Mark Lipsis (ph) of Prudential Equity Group.

Two questions.

The first one is do you guys have some sort of long-term operating model you guys are targeting?

The second one, you talked about inventory, the distributors, what do you think inventories look like at OEMs?

Thanks.

I'm not sure I know what the inventories look like at OEMs right now.

Other than the evidence but maybe Henri can add more solid background.

I just got back from Europe visiting a number of customers.

All I can tell you they are seeing healthy growth and as a result, managing their inventories very tightly.

Just to clarify, most of the large OEM, we are on GIT models.

So, we have very little inventory and from what we can tell there, they are experiencing strong demand for their systems.

I would expect from an AMD perspective, our inventory is in the minimum.

As far as the operating models, our goal in life is to get return on capital.

You kind of work backwards from that, I think as we stated before.

That requires 18% operating income level.

That is what we continue to drive to.

They are slightly different cost structures, operating models between the two businesses.

In general, we're racing to get back to where we were in 2000, which was 18% operating income level.

Thanks.

We can take last question please.

The final question is from Kevin Roddinghouse (ph) of Midwest Research.

Thanks for getting me in here.

You mentioned a couple corporate wins here.

Are you seeing a general broad-based corporate pick-up at all or were those kind of added on comments?

I think from our perspective, the acceptance of AMD products in the corporate space has been growing and increasing.

We are seeing significant wins in Europe, Latin America and the United States.

We expect that to continue.

Now, that is a space we have not been as strongly a participant in the past and therefore, our growth in that space may not necessarily be reflective of significant growth in corporate spending.

OK.

More market share gains than just a broad-based pick-up?

Correct.

Another question.

You mentioned a couple different Geodes there, any particular Geodes you are seeing strength?

I am sorry, I missed the question.

Any particular geographies that appear to be targeted at others?

This past quarter, across the board.

We saw pick-up across all geographies.

I couldn't pin one strongly over another one.

Thank you.

I want to thank everyone for participating.

Take care.

Ladies and gentlemen, that does conclude the conference call for today.

We thank you for your participation and ask that you please disconnect your line.