超微半導體 (AMD) 2005 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the AMD's fourth quarter 2005 earnings conference call.

At this time, all participants are in a listen-only mode, and later we'll conduct a question and answer session, and the instructions will be given at that time.

If you should require assistance during the call, please press star then zero on your touchtone phone; and as a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Mr. Mike Haase.

Please go ahead, sir.

Thank you, and welcome to AMD's fourth quarter 2005 earnings call and year end conference call.

Our participants are Hector Ruiz, Chairman of the Board, President and CEO;

Robert Rivet, Chief Financial Officer; and Henri Richard, our Chief Sales and Marketing Officer.

This call is a live broadcast and there will be a replay at amd.com and streetevents.com.

The telephone replay number is 800-475-6701.

Outside of the United States, the number is 320-365-3844.

The access [INAUDIBLE] is 808058.

A telephone replay will be available for the next ten business days starting at 7 p.m.

Pacific time tonight.

In addition, I'd like to [INAUDIBLE] your attention that our Q1 2006 earnings quiet time will begin at the close of business, Friday, March 10th.

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

Investors are cautioned that our forward-looking statements involve risks and uncertainties that could actual results to differ materially from our current expectations as set forth in the forward-looking statements.

The semiconductor industry is generally volatile, and market conditions are particularly difficult to forecast.

Because our actual results may differ materially from our plans and expectations today, I encourage you to review our filings with the SEC. where we discuss in detail our business and risk factors, setting forth information that could cause actual results to differ materially from those in our forward-looking statements.

You'll find detailed discussions in our most recorrect SEC filings, including AMD's annual report on Form 10-K for the year ended December 25, 2004, and AMD's quarterly report on Form 10-Q for the quarter ended September 25, 2005.

With that, I'll turn it over to Hector Ruiz.

Thank you, Mike.

Our fourth quarter results underscore the undeniable fact that the AMD growth engine is gathering momentum.

The strong approach of our execution led the Company to records in total revenues, micro processor units and revenues across each of our server, mobile and desktop product lines, as well as micro processor gross margin and operating income.

Our solid ASP improvement confirms the rise of AMD as a premium brand for both consumer and commercial customers alike.

And our JV expansion successfully completed a public offering, [INAUDIBLE] timely capital infusion to our business, and allowing AMD to bring increasing focus to the growth opportunity in front of us.

In our micro processor business, we experienced almost 80% year on year growth in what continues to be the largest quarter of the seasonal cycle.

We continue our strong projectory in the enterprise, where the superior performance for the [INAUDIBLE] characteristics of the AMD Opteron platform drive unprecedented opportunities for our customers and partners.

In the fourth quarter, we were pleased to add AIG, Albertson's, Clear Channel, and Nissan Motor Company, among others, to our expanded list of Global 2000 companies and their subsidiaries who have adopted AMD 64 technology.

As of today, 90% of the top 100, and more than 45% of the top 500 companies on the force Global 2000 use AMD base solutions.

We're thrilled to report that eBay is bolstering the search functionality on its site with hundreds of Sun's new AMD Opteron processor-based Sunfire x64 servers.

EBay will combine the power and performance of the Solaris operating system running on AMD Opteron processors for better performance and energy efficiency.

AMD's Opteron model 880 with [INAUDIBLE] Dual Core technology continues to lead the industry in [INAUDIBLE] benchmark performance for 4P servers.

Customer momentum in the commercial segment continued with the launch of the HP dx5150 [INAUDIBLE], and new blade server offerings from HP and Fujitsu Siemens.

We're also pleased that Supermicro announced general availability of a broad wide range of AMD Opteron based server and motherboard blade solutions.

Our mobile business continues to gain steam, reflected by all time record revenue in the quarter and continued growth in global demands for AMD's Turion 64 mobile processor platform.

We are pleased to report over 100 platforms based on AMD's Turion 64 processors are either shipping or in development worldwide.

AMD continues to show strong progress in key high growth markets, particularly China, one of our largest and fastest growing markets.

We were honored to announced the [INAUDIBLE] adoption of our platform by Tsinghua Tongfang, China's third largest PC maker.

In addition, we licensed our low-power AMD Geode GX2 processor to the esteemed Ministry of Science and Technology and to Peking University for use in developing new technologies to support primary education in rural China.

Our AMD64 base products continue to earn industry recognition, receiving 20 more awards in the fourth quarter, including the Tech Innovator Award from VARBusiness, Gear of the Year recognition by Maximum PC and acknowledgement as one of the hot products of the year by EDN Magazine.

Each of these awards was for our best-in-class AMD64 dual core technology, the only industry standard microprocessor family designed from the ground up for multi-core computing.

On the manufacturing side, our Dresden team continues it excellent performance record, both in terms of the continued operation of our [INAUDIBLE] FAB 30, as well as in ramping our new state of the art 300mm FAB 36, which more than doubles our capacity in the next 3 years.

By all measures, the fourth quarter was outstanding, characterized by accelerating customer and end user adoption of our AMD64 platform microserver mobile and [INAUDIBLE] product lines, the successful public offering of our expansion business, flawless manufacturing execution in our FAB 30, and the grand opening of our new FAB 36 facility in Dresden, Germany, as well.

Superb execution of our financial strategy, with a reduction of debt and the expansion of our cash balances.

It was a spectacular end to a year of reinvention for AMD, providing once again a healthy foundation for continued growth and success in 2006.

Now let me turn it over to Bob to review the results for the quarter, as well as the outlook.

Thanks, Hector.

AMD had an excellent quarter, including: Continuing market share gains in server, mobile and desktop markets; continued growing demand within the commercial sector for not only AMD-based server offerings, but for AMD based mobile and desk top offerings as well; improvements to the balance sheet, including a reduction in debt of $639 million, and year end cash and short-term investment balances increasing to $1.8 billion; the successful IPO expansion, which closed on December 21st; and financially, we reported another very strong operating quarter.

Before I review the operating statement detail, let me mention that the completion of the Spansion Flash Memory IPO requires several changes to our reporting.

So I want to take some time to help you understand both our reported results and the way model our business going forward.

So in addition to our GAAP consolidated financials, I will also discuss non-GAAP results.

For your convenience, we have included within our press release a new table which reconciles AMD going forward to the consolidated GAAP figures.

I would like to take a few moments to walk you through this table -- it's labeled 1.6 in the press release.

The first column shows our fourth quarter GAAP results, including total consolidated sales, of $1.84 billion, up 45% from the fourth quarter of last year and up 21% compared to the third quarter of 2005.

Net income was $96 million or $0.21 per share.

This data includes 86 days of Spansion's results before the IPO, and also a non-cash charge of $110 million.

The third column shows non-GAAP results, excluding the $110 million non-cash, loss on ownership dilution in Spansion, which results in an EPS of $0.45.

Column 4 shows the impact of the Memory segment in Spansion on each line of AMD's financial statements, which totals a negative impact on net income of $39 million.

The fifth column reclassifies the net impact of the $39 million from each line item to one line item.

Excluding this line, the Company's operating results are presented in a forum that will be more consistent with the presentation of future results.

Fourth quarter sales of $1.35 billion, a 34% increase compared to the third quarter of 2005, and a 78% increase compared to the fourth quarter of 2004.

Gross margin was 57%.

SG&A was 18% of sales, R&D was 19% of sales.

Operating income was $268 million, the Memory segment of Spansion on net income was a negative $39 million.

Net income for the quarter is still 205 million, or $0.45 per share.

Switching to the business segment highlights: CBG sales were $1.31 billion, another new record, and a 79% increase over the same period a year ago.

We also grow 35 percentage points for the third quarter of this year.

Our strong micro processor sales indicate that we once again took share across the server, mobile and desktop product offerings, particularly in the performance segment, as indicated by our ASP growth.

Unit sales in the quarter increased by 27% quarter on quarter, and we saw a 6% improvement in average selling price.

Server, mobile, and desktop processor sales each grew significantly compared to the third quarter of 2005.

Mobile processor sales growth was driven by increased shipments of AMD Turion 64 processors.

Server and desktop sales growth were driven in particular by increased customer adoption of Dual Core AMD processors.

Geographically, processor sales were especially strong in North America, Europe and Greater China; and distribution in consumer and commercial channels are reporting very lean AMD inventories worldwide.

CPG's operating income of $287 million established another new record in the quarter, up again from the record levels of the third quarter of 2005.

Included within CPG's results are the bonus and profit sharing accruals that had previously been included in the "All Other" segment.

With the deconsolidation of Spansion, we have reclassified and confirmed these expenses into the specific business segments that earned them, primarily CPG.

Net income impact to the Memory segment and Spansion at AMD was a negative $39 million, as I mentioned.

Again, Column 5 provides an outline of how AMD would have looked in the fourth quarter when you exclude the Memory segment results and all Spansion related charges.

Going forward, you will see a line item called "Equity and Net Income of Subsidiary" below the "Interest, Income and Expense" lines reflecting our current 37.9% ownership in Spansion results.

Turning to the balance sheet, the year end balance sheet reflects the deconsolidation of Spansion into the line item "Investment and Subsidiaries."

Our cash balance was $1.8 billion up $452 million compared with the third quarter.

This increase was due to cash flow from operations and loan pay offs from Spansion.

Debt was reduced by $639 million compared with the third quarter.

This includes the $201 million convertible debt conversion and approximately $440 million of Spansion debt moving off our balance sheet.

AMD's debt to capital ratio finished the year at 28%, good progress toward our target of 20%.

Fourth quarter capital expenditures, excluding the Memory business was 250 million -- $250 million for AMD.

Inventory declined as a result of the Spansion [INAUDIBLE],and a $61 million reduction in AMD processor's inventory.

Now I would like to discuss the outlook.

AMD's outlook statement for the first quarter and full year of 2006 are based on current expectations and do not include Spansion.

The following statements are forward-looking, and actual results could differ materially depending on market conditions.

AMD expects first quarter 2006 sales to be flat to down slightly compared to the 1.35 billion in the fourth quarter of 2005.

If achieved, this would approach a 70% increase from -- from comparable sales in the first quarter of 2005.

Operating expenses, which include R&D and SG&A, will increase by approximately 6% compared the $506 million in the fourth quarter of 2005.

Stock option expense in the first quarter will be approximately $16 million at the current share price.

And finally, a reminder, the line "Equity and Net Income of Subsidiary" should be modeled using our current Spansion ownership of 37.9% multiplied by your estimate of Spansion's quarterly net income going forward.

For the full year 2006, you should be modeling capital expenditures of approximately $1.4 billion; depreciation and amortization will be approximately $825 million; the tax rate within a 10 to 15% range; and I also wanted to call your attention that we will have an extra week in our fiscal 2006, which we will take in the second quarter of this year.

In summary, 2005 was a very good year.

We made significant strides in taking market share, improving our operating results and strengthening the balance sheet.

We believe that we are very well positioned for 2006.

And with that, I'll hand it back to Hector.

Thank you, Bob.

We began 2006 with more momentum and higher quality momentum than at any other time in our history.

Revenue is not just growing, it is accelerating.

Platform adoption has never been stronger, particularly among the world's most respected OEMs and industry partners.

Our marketing capabilities are now recognized as world class, and our global footprint is getting stronger every day.

The industry is helping.

Customers and partners that have elected to partner with AMD are seeing the opportunities that come from providing the freedom of choice to their customers.

We have seized the mantle of the technology leadership in our industry, and are continuing to distance ourselves from the competition.

In our world class Dresden operation, the new ramp of our new FAB 36 is going extremely well.

Production started late last year; yields are outstanding and beginning to approach the 530 levels.

Production shipments are expected to begin before the end of this quarter.

We are methodically marching toward the substantial expansion of our capacity in preparation for a significant sustainable increase in worldwide market share.

We have not peaked; this is just another stage in our climb to greatness.

We are poised and ready to gain even more share.

And consistent with the revenue and profitable growth engine that we have become, we have positioned ourselves to grow at least at twice the rate of the industry.

Once again, I want to thank each and every AMD employee for remaining major focused on the task of creating the world's most innovative semiconductor products and technologies.

We remain highly motivated by the prospects of helping to create a marketplace that is better for our customers, partners and end users worldwide, and we are very encouraged that our industry is showing a strong desire to break free from the artificial competitive barriers that have constrained all of us to date.

Thank you, and I would like now to turn it over to Mike Haase for the Q&A session.

Thanks, Hector.

Operator, we'll begin the Q&A forum, please.

And ladies and gentlemen, if you would like to ask a question, please press star then 1 on your touchtone phone.

You are hear a tone indicating you've been placed in the queue.

You may remove yourself from queue by pressing the pound key.

And if you are using a speakerphone, please pick up the handset before pressing the numbers.

Once again, if you have a question, please press star then 1 at this time.

And our first question is from the line of Michael Masdea with Credit Suisse.

Please go ahead.

Yes, thanks a lot.

I've just done the math -- I'm trying to get a handle on how much market share you put in the quarter.

Any estimates from your end?

It looks like it's a lot more than your competitor might have thought.

Well, we have the numbers.

A year ago, we had 9.6%; a quarter ago, we had 11.9%, and it looks like we had 15.3%.

Great.

And then given the concerns about the [INAUDIBLE] demands from your customer -- your competitor -- any concerns that you might have gotten spill over demand which is not going to sustain into the new year, based on your familiarity with your design?

Can you repeat that question, Mike?

Yes, at the end of the year, obviously there's some cancellations from your competitor.

They talked about some chipset shortages.

Do you think there's any chance you got some incremental demand are because of those shortages that might not be there in the coming quarters?

Mike, our customers have to plan their production weeks and weeks ahead.

You know, you don't turn things like this on the dime.

Our designs are different.

Our products are differentiated.

There's no doubt that there seems to be production struggles with our competitor; but again, I don't think it affected our quarter.

Great.

Last question, just on the ASP side, obviously, it's pretty clear you get [INAUDIBLE] in the service side, but on the desktop and mobile side you seem to be on par in like for like offerings with Intel.

Is it just a mix issue?

And how do you continue to move up that mix?

Well, we're continuing to improve our mix, obviously.

Our server business is the fastest growing part of our business; our mobile business, the second growing part, but we also grew our desktop business very significantly, and our ASP increase is both the combination of a better mix, but also some ASP improvement in certain segments.

And I won't give you more granularity than that.

That's fine.

Thanks a lot, guys.

And our next question is from the line of Adam Parker with Sanford Bernstein.

Please go ahead.

Just a couple of questions related to, you know, market share over the next year.

I'm sure you listened to Intel's conference call last night, where they pretty confidently stated that they're going to gain some share back and I think cited [INAUDIBLE] performance [INAUDIBLE] cost and some reasons for that.

So have you noticed signs of Intel getting more aggressive at all in pricing?

Your pricing is going up.

Would it have gone up more without some action from them?

That's the first part of the question, and then the second would be, you know, just can you give us more color on your processor road map in '07 so that we can get a bit more look into how we should think about your competitiveness in the major product areas next year?

Well, Adam, let my try to answer part of the question, and when I finish Henri can do some of the other piece.

First of all, the market continues to be, as it always has been, very competitive.

Anyone that thinks that pricing competition doesn't exist, you know, is dreaming.

It is very competitive, but we are -- as some of you -- some of you analysts have already concluded that we are very competitive in cost, and therefore, for us it's -- it's -- the cost issue is not the one that -- that drivers us.

The second part is we're dealing with a much complex and broader range [INAUDIBLE] than we've ever had in the history of the microprocessor industry.

So on one end you have the very high performance, high volume, feature-rich products in the server space, in the gaming space, et cetera, where, you know, frankly, people want those features.

They want that performance and they are looking for that particular thing in those products.

It's not an issue of pricing.

As a matter of fact, we know for a fact in some cases where some customers have turned down practically [INAUDIBLE] pricing products because they don't need them.

They really want the performance, the features, et cetera, that we are offering.

On the other hand, when you go back to the other extreme, when you get to the value platform from the very low end of this space, which is more commoditized, the pricings are low enough, currently there's very little room for price improvement.

So I think we're dealing with a scenario where, as I stated before on previous calls, you know, it's a demand for our products that is driving the -- what we see as the healthy outlook for us going forward.

As far as what we'll do in 2006 and beyond, we stated in our previous analyst meetings, that we have a business model that we believe that in the 2008 or 9 trimeframe we should aim to achieve 25 to 30% of the market.

We still have that as our goal and as a business model, and we believe we steadily making progress, quarter by quarter by quarter.

From a -- from intents of giving you any more granularity than that, that's about as best do, and can tell you.

On our products road map, before I turn it over to Henri for any additional comments, I would just like to say that we rely heavily on the input of our customers.

Our customers tell us whether the road maps we have are appropriate for them, and we're getting very strong inputs and strong encouragement, that if we stay in our road maps and execute in 2006, we have an excellent outlook to continue to grow and gain share as we did in 2005.

Okay.

You know, if you get -- as you, you know, work toward achieving this goal, 25, 30% share, can -- can the third party sort of chipset vendors produce enough to accompany that magnitude of volume three or four years from now, or is there going to some increasing demand on you to produce more chipsets internally?

You know, we are open to any idea -- first of all, we must do everything we can to meet the needs of our customers, and that is in terms of value, performance, cost, et cetera.

But what drives us is total cost of ownership, and in doing so we are working very closely with partners worldwide to make sure we're as intimately linked in our planning and anticipation of these -- of our challenges going forward, and I think the fourth quarter is a good example of a job that we do reasonably well.

We had a very stronger quarter, a stronger quarter than probably most people anticipated, and in fact, they're a little healthier than we expected.

And we were able to manage with our partners to meet the needs and demands of our customers.

That process will continue.

We intend to get better at it and -- and -- yes, it's a challenge.

We're doing well; we're not planning on that being a stumbling block.

Okay, so there's no need to think more about that as you bring on a lot of capacity as a way to sort of fill up extra capacity down the line, or that's just beyond your current thinking?

Not right now.

Okay.

Great thank you.

And our next question is from the line of Mark Edelstone with Morgan Stanley.

Please go ahead.

Good afternoon.

First off, congratulations to the team on just a phenomenal job.

I just had a couple of questions.

One, Bob, you gave depreciation for the year.

Can you provide guidance for Q1 depreciation and then how it ramps as you go through the year at this point?

It's fairly linear spread.

I'd say probably -- you know, I'll call it maybe 10% more in the first half of the year than the second half of the year, but not a lot of difference, Mark.

We have got -- between the roll off and the roll on, there's not a lot of change in that number.

Okay.

Great.

And then obviously your -- your mix is continuing to richen.

Can you give us a sense as you look at your gross margin you had in the quarter of 57%, as you bring in that incremental depreciation and as yet as your continues to gets richer, what's your sense of how gross margins trend as you go through the year?

Well, as I stated before, you know, there's more of a challenge in the first half of the year than in the second half of the year, as we -- you know, I'll call it have a lot of capacity and capability; but obviously we have to ramp into it.

Depreciation comes on by tool, not by wafer start.

And so we'll have a little bit of challenge in the first half of the year, less in the second half of the year; but we think, as you said, the ASP can offset that issue as we continue to improve our ASP quarter on quarter -- as we've demonstrated for many, many quarters in a row.

But I would say the challenge is more upfront right now in the first quarter as we're just starting to see output from that facility.

Okay.

Very good.

And just as one housekeeping item, I just wanted to make sure I understood the moving parts in the P&L, if I look at Spansion's results versus what you reported on a consolidated basis through the 20th, is my math correct that basically they did 104 million of revenue in the last 5 days of the quarter?

You got your math right.

Okay.

Very good.

And then just lastly, maybe for Hector, as you are ramping up FAB 36, and sounds great that things are going well there, when is your sort of expectation as to seen we can see wafer starts on a [INAUDIBLE] basis at Fab 36 cross over that of Fab 30?

Mark, you know, I haven't done the math.

I would be glad to step back and think about it and give you an answer, but off the top of my head, I don't have that math in front of me.

Okay.

Great I'll come back to you.

Thanks a lot, guys.

Thank you.

And our next question is from the line of Joe Osha with Merrill Lynch.

Please, go ahead.

Hi, congratulations, guys.

I don't think I've ever seen competitive momentum shift like this, so congratulations.

Two -- two questions, one just following up on what -- what Mark said, you shouldn't be recognizing Spansion revenue on your P&L dollar for dollar the same as Spansion recognizes it, right?

Because of the way the -- the selling concession works.

Is that true?

You know, historically, it was exactly the same.

I mean if -- if their quarter -- and our quarter were exactly -- and we owned them for the whole quarter, there was no difference between the two.

Okay, but on a go-forward basis?

On a go-forward basis, we will not report any sales [SPEAKERS OVERLAPPING], just our portion of the net income.

But as I -- under the previous arrangement, they were reselling -- they were selling Flash to -- to you, and then you -- you would resell it at -- at a --

There was no commission there.

We moved the sales force.

That happens early on in the process, but as -- as through most of '05 we actually moved the compete sales force into Spansion so that discounting -- that's -- what it was paying for went away.

Okay, so it's just the simple calculation, right?

That's right.

Okay.

Thank you.

And then the second thing, particularly looking at the mobile -- your mobile products, I was wondering if I can get a bit of a sense as to how that road map plays out in '06, and particularly when 65 manometer products hit.

As you know, we have an introduction of our Dual Core in the mobile space in conjunction with the move to our platform to DDR 2.

This will happen in the middle of the year.

Does that occur --

There's no change.

Does that occur on 65 manometer?

It's going to be a 90 manometer first.

Bob, is there some way you could be persuaded to put a [INAUDIBLE] around those gross margin comments?

No.

Had to ask.

Congratulations.

Thank you.

And your next question from the line of Ben Lynch with Deutsche Bank.

Please go ahead.

Thank you for tearing up the end demand versus market share question that Intel brought up last night.

Clearly, you know, phenomenon market momentum in Q4, again.

I hear you are getting 5 percentage points, so are you able to comment on whether -- without naming specific names -- there were particular customers where you had very significant increases in your penetration in Q4 versus Q3?

Across the board, our customers are increasingly showing interest in your products, so -- and even if there was one customer that was very strong, we couldn't give you that.

Okay.

Other question I wanted to ask, maybe for-- for Bob, given your success, you -- you know, are eating up those NOLs very quickly, at what point now do you think you'll revert more to sort of 30% or so tax rate, please?

Well it -- you know, no surprise, we continue to chew those up as we continue to knock down very healthy profit levels.

As I've indicated, the tax rate will be sub 30% in the 10 to 15 range next year -- this year, I'm sorry, in 2006. 2007 obviously, based on our expectations, will start getting -- we'll have to move it up again.

Maybe with a little luck even this year.

But to me it -- it's-- '07 is when we'll start popping above the 15% level.

Okay.

Great.

And maybe the last question, you guys had sort of indicated even at the end of Q2 that you weren't necessarily swimming in capacity, so it was just something that you were keeping an eye on; and yet you had these two, you know, huge -- huge quarters.

What have you been able to -- given that that the industry has been tightening up -- been able to do just to, you know, to make that not be an issue?

Well, there are a number of things going -- we have a phenomenon organization in manufacturing that continues to look for ways to be more productive, and you know, we have been able to increase productivity in our factory, frankly, to an incredible level -- the factory is just running incredibly well.

We have been able to also squeeze more -- move an area out of the factories by doing more very creative, clever arrangement of the equipment, et cetera. [INAUDIBLE] the transition will complete -- completion of the transition to 90 manometer was very helpful, and the yields are high.

The yields are -- remain at phenomenal levels.

And as I've stated before, all of the leading industries that are benchmarked by [INAUDIBLE] continue to show that our manufacturing is world class.

A think of lot of that has allowed to have continued plan increase in -- in unit capability.

Going forward, our plans continue, of course, to emphasize capacity, productivity, et cetera; but in addition to that, this year, we have the addition of FAB 36, which is very significant, and the beginning of our foundry, which will start producing product in the second half of the year -- or revenue -- and that will also contribute to our capacity.

Great.

Thank you very much.

And well done, again.

And our next question is from the line of Tim Luke with Lehman Brothers.

Please go ahead.

Thanks, and, again, congrats on the quarter.

I was wondering if you could just -- or Henri, if maybe you could remind us of what the increases in capacity are now targeted to be through -- through the year, and as -- as you bring on Fab 36, and to what extent you are seeing visibility in terms of our order flow to-- to fill that capacity?

First, you know, let me make some comments in general about silicon, and Henri can comment about demand.

We -- we are ramping Fab 36 as rapidly as we can.

Uh-huh.

In addition to that, we are bringing on board the capability of our foundry for the second half of the year.

Those things will complete.

In terms of the contribution they make, the Fab 36 with reach full capacity sometime in the 2008 time frame, and we believe that the -- in the current mix -- one of the things we have to deal with, the mix changes.

Someday we'll be building [INAUDIBLE] core and that will have an impact on units. [INAUDIBLE], I can see our unit capability being able to grow, you know, 40% up this year.

And -- and continue to go up, so that when we get to the 2008 time frame, we're talking about a 100 million-unit capability for us.

So you kind of [INAUDIBLE].

But those are our plans.

And it -- it sounds that as you broaden out your region to customers, that your visibility of fulfilling that 40% unit is improving, or how can you shake that?

Tim, there's two factors that influence our visibility into the business.

First, we're increasingly deriving a larger portion of our revenue from [INAUDIBLE].

We continue to have a very strong channel organization, but our [INAUDIBLE] represents a larger portion of our revenue.

Secondly, our commercial business is growing very quickly, and we have a pipeline in place that allows us to know not only what we're going to do next quarter, but also further down the year.

So the additional visibility that these two items give us is obviously helping us have a much better grip on what the business looks like.

If I could just ask one thing for Bob, and that was just to clarify, on the bonus payments, it seems that they would have been fairly significant going into the fourth quarter, and perhaps less significant in a way in '06, given the planning that you have.

Yes, I mean -- I'm -- I'll get personal with you.

I'm sure every year, your bonus targets get reset.

We're no different than anybody.

Clearly this year we believe -- and I think we're demonstrating based upon what's happened throughout the year and in the fourth quarter in particular, the team did an outstanding job, and they deserve to be rewarded.

But of course, the bogies get reset as we start '06.

What is the rough estimate of what that would have been?

We don't -- we don't give that kind of color.

Thank you very much, guys, great quarter.

Sure.

Thank you.

And our next question is from the line of Glen Yeung, representing Citigroup Investment Research.

Please go ahead.

Thanks.

If we were to look into the first quarter of the year, I wonder if you can give us a sense of -- or maybe rank is a better way to think about it -- where you think the opportunities are greatest, in service, desktop or notebook?

And then maybe the same question for 2006.

Well, clearly the server business is going continue to be our engine of growth.

We have a lot of opportunities there.

I'm not going elaborate on what our market share might be.

We have to wait for Mercury Research and other analysts to give us their view, but it's clear we have gained significant share in this fourth quarter, and I think the momentum, and as we've told you many times before, there's an underestimation in the market of the momentum of the Opteron platform and its adoption in Fortune 500 companies.

And bear in mind that as we told you at the analyst meeting, we are going increase the number of platforms in the marketplace and broadening the spectrum of solutions based on the Opteron platform, so I think that's going continue to grow very quickly for us.

Mobile, obviously is doing extremely well.

That's driven by the fact that the market is growing; but also I think that increasingly customers are looking for differentiation, and Turion 64 platforms provide that to them.

But interestingly, we're also doing extremely well in desktop; and in particular, in the mainstream and high performance segment of it, where, you know, the supremacy of our Dual Core technology is clear and where the demand for the Athlon 64 X2 and the Athlon 64 FX continues to surprise us on the positive side.

So for Q1, obviously across all of the segments, we are very positive.

On the overall, year we still have an enormous opportunity on tap in my of the high-growth markets of the world.

You know, we've have made great progress in China; but there's a lot of other places where we have plans to execute, and I feel that we have the right product mix and people in place to go and seize those opportunities.

So I would say first quarter it's pretty much more of the same; for the rest of the year, expect to see us continue to show great progress in commercial and in high-growth markets.

Okay.

And I could -- if you were sort of isolating your thoughts to the emerging markets, I wonder if you can give us a sense of the trends that you are seeing there in terms of emerging market mix; because, for example, in handsets, which is is obviously [INAUDIBLE], we're starting to see a lot more higher end models get adopted in emerging markets, you know, recently.

I'm wondering if that's something we can also see in PC market.

Well, actually, you know, that's really a very complex question, because the answer -- emerging markets is unfortunately [INAUDIBLE], it's very, very different.

And an example that I can speak to that is very clear and obvious, is when you look at the emerging market growth in Latin America, as an example, and in Mexico, it's heavily influenced by global players, tier one customers who are very strongly [INAUDIBLE] there.

In Brazil, [INAUDIBLE] there are a lot of local players who are very strong also, and they're [INAUDIBLE].

So very two different scenarios playing there.

And then you have India, where frankly at this point in time, some of the strongest driving forces in India tend to be consumer oriented.

So it's a country with a very strong appetite for the consumption of content for consumers, and there you're looking at a very different picture.

The good news is that we see -- when you add up all of those markets, you see a very healthy demand across a very broad spectrum of products which we offer.

So we've very -- feel very bullish about our ability to be able to serve those markets.

So I think there are -- but let me ask Henri to add something to that.

I won't give you the region, but just to give you a vantage point, our largest improvement in [AFC] in percent was in one of the high-growth markets in the world; so there a clearly a lot of opportunities for AMD in the mainstream in the high performance segments in these markets.

It so happens that in the past year, our marketing was our focus at those segments; also our lower-end products were sold in those markets, but we're finding great success in the positioning of our new Turion [INAUDIBLE] 64 and Opteron brands.

Very interesting.

Just one last question, which is, you know, obviously you have Dual Core entering the market and the demand is starting to build.

Maybe what your sense is as to to how you view Dual Core versus Single Core and the relative level of interest that you are seeing in Dual Core chips.

Well, clearly in server -- you know, Dual Core is rapidly gaining traction and we expect that conversion to be almost complete by the end of 2006.

In the science space, it's a little bit different.

As we -- we had a question a couple of calls ago where, you know, I made the point that it's really a software issue.

It's not that people aren't interested in Dual Core -- you are correct, there's a lot of [INAUDIBLE] in that space for us -- but I think as applications come to the market and take advantage of the technology, then that will drive faster adoption than what we're seeing right now.

Now, we have -- you know, we happen to have both very high performance Single and Dual Core processors, and so our view may be skewed by the fact that we have the superior technology.

Thank you.

Thank you.

And our next question is from the line of Joann Feeney with Punk Ziegel & Company.

Please go ahead.

Good afternoon folks, and congratulations again.

I just have a brief question, the growth that you project for 2006, you're saying you expect it to be at twice the interest rate.

Now, clearly the achievements you've had in the second half of '05 would carry you well beyond those rates if you just kept that level of sales flat, so clearly you are looking at a projection based on your levels in the second half of '05.

Is that a good place to start?

Well, I think-- let's just be pretty open and transparent here.

I think in a competitive space that is as strong as ours, where you have been incredibly, you know, brutal and monopolistic competitor versus one that's creative and innovative serving customer's needs, and [INAUDIBLE] to the market, I think that's pretty aggressive.

And if we -- you know, our intent is to work our buns off to beat those numbers; but I think for -- for us to do anything more than that, frankly, I don't think makes any sense.

And then on -- on the manufacturing side, do you have a yield timetable for FAS 36 that you can talk about?

Yield timetable?

Can you help me?

In terms of the ramp-up over the course of '06.

You know, you said you expect to increase yield pretty rapidly.

I'm just wondering what levels you'll start at and how quickly you'll get to maximum yields.

I think, if I understand the question right -- let me just back up a little bit -- when we moved from 250 manometers to 180, it look us a certain amount of time to reach maturity in yields.

Then when we went from 180 to 130, we were able to cut that in about half of that same time.

Then when we went to 130 to 190, the time that it took to get there was significantly shorter.

And our goal now as we go from 90 to 65, frankly, by the time we start shipping product we would like to be at mature yields.

So that's almost like saying zero time.

I know it's aggressive, and where I think our manufacturing team feels up to the challenge of stretching for such an aggressive ball.

Okay, great.

Thanks very much.

Thank you.

And our next question ask from the line of Jim Covello with Goldman Sachs.

Please go ahead.

Thanks so much, and congratulations on the terrific execution again.

I apologize for spending more time on such a basic issue, but I just want to make sure I understand this.

You are talking about going double the market rate, and the number off of which you to grow double the market is that 3.9 billion that you break out which is the subtotal excluding the Memory segments?

It is -- I think -- I think so.

I think that whatever the number is for our business without the Memory segment, that is the basis of which we will grow at twice the market or better.

Okay, so if I just work through that and I say roughly 3.9 billion, and if we assume PC markets grow -- PC units grow 10, just assume ASPs are flat for now, that's 20% growth -- that would get do you about $4.7 billion.

But you're already at 1.35 -- or if it's down a little bit in the first quarter as per your guidance, $1.3 billion.

So what am I missing about the sequential expectations as we go throughout the year, then?

I think it's very simple.

And I think we intend -- you know, underpromise and overperform.

And you know, at this point in time we're confident and have a high confidence level that we will deliver at least to twice the market rate.

Okay.

And then final question for me is -- if you look at your ASPs which are going higher, because of your excellent execution and product offering, and your competitor's ASPs, which are going lower, as the gap closes between your ASPs and their ASPs, what kind of impact do you have that has from a competitive standpoint in the marketplace?

I go back to the point that we made earlier, is I think that we -- it is a very competitive place.

Our mix is improving, but the ASPs continue to go down with time because that's the nature of the beast.

It is important to -- to -- to highlight that as -- as we put pressure on the market, so that there is a -- a -- perhaps an [INAUDIBLE] operation of ASPs converging, I think the only people -- the people that win are the customers, and the end user.

And I think that will be healthy.

I think healthy for everybody.

Certainly healthy for us for sure.

Thank you very much.

Thank you, and our next question is from the line of Chris Danely representing J.P. Morgan.

Thanks, guys.

Most of my questions have been answered, just a few quickies.

Can you give us CapEx guidance for '06?

I guess I'm not prepared to do that.

I mean, to me, we'll do this quarter at a time.

To me, to some degree, we need to talk with -- based on the revenue expectation that takes place.

So right now, I'm only prepared to give you first quarter guidance.

I -- I guess to put it another way, can we assume just a normal sequential wrap, nothing -- nothing different in there?

Unexpected, I guess?

No.

I mean, nothing unexpected.

I mean, we will continue to increase our design -- our engineering capabilities so that we can increase the number -- our architecture for the future, the number of platforms, et cetera, et cetera.

We will continue to make the appropriate investments in marketing to have the appropriate teams around the world to execute and acquire more customers.

So, you know, to me we will continue -- we like being in the lead, and we're going to continue to maintain the lead and invest appropriate.

That's fine, and then can you give us a sense of what the rough mix was between server, desktop and laptop in Q4?

No, we think we've been going very good down that way.

The only thing I can server led the growth, followed by mobile, followed by desktop.

Great, and last question, obviously you're capacity constrained.

When do you think you guys will be able to catch up to the [INAUDIBLE] and get a little more comfortable?

First of all, we -- we haven't said that we're capacity constrained and we don't believe we are.

We think we are planning very tightly with our customers, and we're executing well.

That's why you see our inventories being fairly lean and -- but we're executing.

We did not have affect any customer during in the quarter.

And we don't plan to in 2006.

So our -- we're balancing things reasonably well.

Great.

Thanks.

And our next question is from the line of Tom Thornhill with UBS.

Please go ahead.

At the analyst meeting, you gave some targets for gross margin, R&D, and G&A for AMD prime.

Given the outstanding performance in the quarter just finished-- and congratulations on that-- are there any adjustments that you would want to make to some of the ranges on the line items?

No.

To me -- you know, we put a lot of thought in that modeling, and our expectations.

So to me we'll -- we continue to try to execute to those ranges.

So I would say no.

There's no update.

Okay, so the gross margins, the range you had given there was 51, 57, and you achieved that in the fourth quarter, but you still think that's the appropriate range for the -- the out year?

Yes.

I mean, just to remind you of Fab 36, this giant facility starts production right now.

So that's a large depreciation bill that needs to be absorbed to get cost to match output and revenue and cost to match; so to me it still is appropriate at this point in time that we will continue to -- hopefully, you know, beat the numbers.

But that's a decent range to live in.

Okay, so the depreciation number that you gave was what, 825, right?

For the year, that's right.

For the year, and that's up 150 million?

That's right.

That's right.

Very good.

Other -- also, you have reduced some debt recently, which I would imagine will effect the interest expense line.

Can you give some guidance on what you expect to see -- what we should be looking for for interest income and interest expense as we go through the year?

No, I think you can model it off of our balance sheet, you know, what's going to happen from there.

And obviously, I will deploy excess cash to reduce debt on a continuous basis to focus in on the 20% debt to capital ratio.

Okay.

The options expense, can you give us some idea of the break down to COGS, R&D and G&A, as it will go into the income statement?

I'm not prepared to do that right now.

Okay.

We'll follow up offline on that.

Thank you.

Thank you, and our next question from the line of Krishna Shankar with JMP Securities.

Please go ahead.

Yes, congratulations on excellent results.

Will this increase in all three segments, desktop, mobile, and [INAUDIBLE], and can you give us some sense of the magnitude of the [INAUDIBLE] within each of the three segments?

Yes, that's a little bit too much granularity.

They were either stable or increased in every one of the segments, and I'm not going to give more than that.

Okay, and Bob, can you just highlight the stock composition expense here again for Q1?

I missed that.

Right now, obviously it's very dependent on stock price, but right now I would guess based on the current trading level of the stock, around 16 million for the quarter.

Okay.

Thank you.

Thank you for your question, and we'll go next to the line of Mike McConnell with Pacific Crest Securities.

Your line is open.

Thank you.

I wanted to dig a little bit into the server space.

Obviously, you've had a lot of success in the architectural front.

I wanted to ask a couple of questions the interconnect, with Intel pushing out the cost common system interconnect, was curious what you're going to be doing with HyperTransport this year.

You know, there has been some talk about a potential licensing deal.

Is there something we should also think about this year that could help you further some drive market share gains on -- on the server side?

It is our desire on HyperTransport to continue to make it as open as possible, and make it [INAUDIBLE] in the industry, as it had been adopted by -- by a number of folks.

It continues to move in terms of improving the technology.

You know, by next year, we'll be implementing HyperTransport 3, which is a third generation of product.

It is in -- you know, an integral part of our road map and architecture, and will continue to get better.

And as I said before, we have done a fairly open licensing approach to it and we'll continue to do so.

Okay.

Thank you.

Thank you.

And our next question from the line of Mark Lipacis with Prudential.

Please go ahead.

Great, thanks for taking my question.

First on the pricing, I understand that you said it was -- it's always competitive.

Did you say that it was -- that Intel was being more aggressive than normal, or kind of, in your opinion, kind of in track with normal -- normal competitive pricing?

I was referring to normal, which it is very competitive.

Okay.

And last question, you mentioned that the 65 manometer yields were excellent.

Can you help us understand what would potentially motivate a faster ramp of production silicon there?

Is it just simply the yields getter better than you expected, or are there other constraints that lock it down to the original schedule that I think you have been articulating?

Let me just correct a perception.

The ramp of FAB 36 is beginning at 90 manometers, and will transition to 65 sometime towards the latter part of the year.

The yields that I referred to as already approaching maturity were based on the 90 manometers beginning of the ramp.

Our 65-manometer data, which is already coming out, looks very encouraging.

Matter of fact, we have already microprocessor products build on 65 manometer that are really looking at -- as planned.

Excellent at this point in time, and are confident that our ramp beginning the second half of the year will go well.

It continues to get stronger and stronger.

And what motivates the change from one node to the other, frankly, is -- are we able to meet our customer needs and demands are better as-- and how rapidly we can make that transition.

We focus really on features, performance, value that it brings to customer; and of course, cost is important and that also takes part of the equation.

But at the top of the list, what is it that our customers want and need from us relative to the product.

Okay, that's helpful, thank you very much.

Operator, we'll take two more questions, please.

Thank you, and our next question from the line of Kevin Rottinghaus with Midwest Research.

Please go ahead.

Thank you.

Hoping you can review a couple of things I might have missed.

First off, on the OpEx guidance for the first quarter, can you just repeat what you said earlier?

6% growth.

And that was --

From the 506 level, which is the last column on schedule 1.6 that we showed in the earnings release.

So the recash number to exclude expansion.

And is that primarily the ramp of -- the new Fab -- the -- just basically engineering wafers, or where does that come from?

It's a combination of many things, but Fab 36 is probably the most dominant of all of them.

Okay, and then could you repeat again, what you said earlier on inventories out in the channel and on your balance sheet as well?

First, I'll start with on our balance sheet, we depleted inventories in the fourth quarter, so you know, I'll call it very good manufacturing execution, and inventories actually went down; and we believe based on all of our checks, whether it's OEM or distributors, our channels are very tight and lean in the channels.

Okay.

And that would obviously include the PC OEMs as well?

That's right, [INAUDIBLE].

And last -- any other granularity that you could give us, on the progress that you are making in corporate on the PC side -- not on the server side, but on the corporate PC side?

Well, you know if you -- we always said our strategy was to penetrate the enterprise through a strong server offering, and we have delivered on that promise in 2005.

Towards the end of the year, you saw some of our partners introducing client offerings for the enterprise.

And you know, part of the positive upside in the fourth quarter was the result of an acceleration to the penetration of our product offerings in Fortune 500 companies, but I'm not going to give you more detail than that.

It's just, as we indicated at our analyst meeting, this is the focus of 2006, winning in the commercial space with clients.

Is that really just what it takes, getting more corporate SKUs out there, or?

Absolutely.

I've always been a believer that it's a matter of choice.

The freedom of choice is what we need to be able to have our technology adopted by more customers around the world.

And the targets are still doubling the number of SKUs for corporate this year?

That's correct.

Okay.

Thank you.

Thank you.

And our last question is going to be from the line of David Wong, representing A.G. Edwards.

Please go ahead with your question.

Great, thank you very much.

Could you give us some idea of what percentage of your microprocessor [INAUDIBLE] end of 2006?

By the end of '06?

Yes.

I would say somewhere in the 50 to 60% more or less.

That's an exit rate.

Exit rate, yes.

Yes.

Okay.

Thank you very much.

Great.

Well, that concludes the call.

And thank you very much for participating.

Thank you.

And ladies and gentlemen, that does conclude our conference call for today.

I'd like to thank you for your participation and for using AT&T's Executive Teleconference Service.

You may now disconnect .