超微半導體 (AMD) 2007 Q4 法說會逐字稿

Good afternoon.

My name is Lanie, and I will be your conference operator for today.

At this time, I would like to welcome everyone to the AMD's fourth quarter 2007 earnings conference call.

All lines have been placed on a listen-only mode at this time.

After the speakers' remarks, you will be invited to participate in a question-and-answer session.

As a reminder, this conference is being recorded today.

I would now like to turn the conference over to Ms.

Ruth Cotter, Senior Manager of Investor Relations for AMD.

Please go ahead.

Thank you and welcome, everybody, to AMD's Q4 2007 earnings conference call.

Joining me on the call today are Hector Ruiz our Chairman of the Board and CEO, Dirk Meyer our President and COO and Bob Rivet, EVP and CFO.

The call is live today from Austin, Texas and is being webcast on AMD.com.

A telephone replay will be available for the next ten days starting later this evening.

The toll-free number is 800-642-1687.

Outside of the U.S.

the telephone number is 6706-645-9291 and the access code for both is 29165551.

Before we begin, 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 are based on current beliefs, assumptions and expectations, speak only as of the current date and involve risks and uncertainties that could cause actual results to differ materially from our current expectations as set forth in our forward-looking statements.

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

Because our actual results may differ material 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 our forward-looking statements.

You will find detailed discussions in our most recent SEC filings, AMD's quarterly report on Form 10-K for the quarter ended September 29th, 2007.

Before I turn the call over to Bob Rivet for some prepared remarks, I'd like to advise you that our Q1 2008 earnings quiet time will begin at the close of business on Friday, March 14th.

Now with that, let me hand it over to Bob.

Thank you, Ruth.

Good afternoon.

We achieved near break-even performance in the fourth quarter.

We again grew the topline in each of our businesses, leading to a 3 point sequential improvement in gross margin.

As a result of those achievements, our overall non-GAAP operating loss was $9 million.

Total AMD revenue was $1.77 billion, up 8% sequentially.

In the fourth quarter we achieved several new records including record microprocessor unit shipments, record microprocessor unit shipments into the distribution channel, record desktop processor unit shipments and, once again, record notebook processor unit shipments.

We are seeing growing demand for new product offerings in each of our businesses and in particular we are -- for our Quad-Core processors.

We shipped close to 400,000 Quad-Core units across our desktop and server product segments consistent with our guidance.

We recorded a net loss of $3.06 per share in the quarter.

In December we disclosed that we would be taking a material charge for the writedown of goodwill and intangible assets associated with the acquisition of ATI.

This charge amounted to $2.89 per share or $1.675 billion of which $1.6 billion was non-cash.

The components of this charge are as follows -- a non-cash goodwill and intangible writedown of $1.545 billion or $2.67 per share associated with the ATI acquisition net of taxes, a non-cash charge for other ATI acquisition related costs of $61 million or $0.11 per share, and a cash investment impairment of $69 million or $0.12 per share associated with our remaining Spansion holdings.

Fourth quarter gross margin increased sequentially 3 percentage points to 44% driven by increased new product shipments, higher ASPs and cost containment.

Manufacturing performance in Fab 36 remains strong, exceeding targets for output yield and cycle time.

Total operating expenses, R&D and SG&A, were down $25 million from the prior quarter, lower than we projected, as a result of continued strong operational discipline.

Cash flow from operation was a positive of $114 million for the quarter.

And adjusted EBITDA was a positive at $203 million as compared to $60 million in the prior quarter.

A reconciliation of GAAP to non-GAAP financial results are available in our press release.

Now, switching to the business segments.

The Computing Solutions segment was profitable in the fourth quarter, and we believe we gained share in the -- in microprocessors on the basis of its 11% growth in revenue.

For the segment, revenue was $1.4 billion up 9% from the prior quarter.

Microprocessor unit shipments increased 7% sequentially and ASP's grew 4% over the prior quarter.

Operating income was $21 million, a $133 million sequential improvement.

The segment returned to profitability on the strength of new products, cost containment and gross margin expansion.

Demand for Quad-Core AMD processors is strong.

We continue to execute our volume ramp and in the first quarter we will more than double our shipments over the fourth quarter.

The Graphic segment, revenue was $259 million, up 3% compared to the third quarter.

The operating loss in Graphics segment was $12 million, compared to a $3 million loss in the prior quarter.

Demand of our new ATA RADEON HD3800 and HD2000 GPU families is strong.

Consumer Electronics segment revenue was $109 million up 12% from the previous quarter driven by improved hand-held sales and higher gaming console royalties.

The Consumer Electronics segment reported an operating income of $12 million in the quarter compared to an operating loss of $3 million last quarter.

Now turning to the balance sheet.

Our cash and marketable security balance at the end of the quarter was $1.9 billion up $361 million from the third quarter.

In the quarter we netted $608 million from a strategic investment by Mubadala Development Company.

We are pleased with our progress improving working capital metrics.

Total inventory at the end of the fourth quarter was $821 million, down 4 days to 76.

In accounts receivable we improved DSOs to 33 days down 5 days from 38.

Now turning to the outlook.

The following statements are forward-looking and actual results could differ materially from current expectations.

In the seasonally down first quarter, AMD expects revenue to decrease in line with seasonality.

Operating expenses are expected to be up approximately 5% compared with the fourth quarter.

Acquisition-related charges are expected to be approximately $55 million.

We expect to have a tax expense of approximately $15 million.

Depreciation and amortization is expected to be approximately $315 million, and capital expenditures are expected to be approximately $425 million in the quarter.

In summary, in the fourth quarter, we achieved near break-even at the operating line.

We grew ASPs on the strength of new products.

We believe we gained share in microprocessors.

We managed costs well while growing the top line and we improved gross margin by 3 points, capping off an 8 point gross margin improvement from a year ago.

We are maniacally focused on our return to profitability.

And as I said at last month's Analysts Day we plan to do so in the second half of 2008.

With that, I'll hand it over to Hector for some closing comments.

Thank you, Bob.

You know, Dirk and I are not doing our usual prepared remarks today because we wanted to do a couple of things differently.

One is to give Bob adequate time for an extended prepared remarks explanation of our financials.

We are very pleased with the progress, and as you saw from Bob's remarks, we came darn close to breaking even operationally in the quarter.

In addition we also wandered to allow at the end a little more time than we usually do to make sure that we were able to address any and all of the questions that any of you might have as well as we can.

One of the things we did in the month of December we had an analysts meeting at which time we told you a number of things that we were planning to do, not only for the quarter, but also for our goals and objectives for 2008.

One of the things I would like to underline today before we go into the Q&A, is that everything we told you at the analysts meeting is on plan, and there has been no change in any of the information that we gave you and the projections we gave you into next year.

One of the things that we talked about and we would like to -- I know we're going to have some dialog on this particular topic, is the fact that we were determined to fix our Barcelona Quad-Core issues as soon as we could.

I'm very pleased to report that silicon has been out of the factory with the fixes that we put in place.

And we're really thrilled with all of the work that's being done, and expect that within two to three weeks we will begin providing our customers the samples that they will then put in certain platforms beginning at the end of the quarter and well into the second quarter and beyond.

Our customers are thrilled about the progress that we've made and they're looking forward to receiving this product.

It is exciting to point out, too, that at the same time we've had silicon [add] on a Quad-Core 45 nanometer product, that equally we're as pleased with the results and look forward to being able to ramp 45 nanometer aggressively in the second half of this year.

In manufacturing we continued to have an outstanding asset in our company in an organization that delivers high-quality products, high yields, low cost and incredibly good quality.

We are very pleased with the progress that has been made, but equally important going into 2008 we have a flexible manufacturing plan that we believe is very strong.

With incredibly great productivity in Fab 36 and the addendum we're going to do in the factory in Fab 38, as well as the continued great performance of Charter Semiconductor in our foundry, we're planning to meet the needs of all of our customers in 2008 with those plans.

But on top of that, it is important to note that this plan is flexible in the sense that we have the opportunity to dial it up if we needed to, to be able to increase that capability quite significantly.

With that, I would like now to turn it over to Ruth to monitor the Q&A for today.

Thank you.

Operator, we'll be happy to take some questions if you could poll the audience, please.

Our first question comes from the line of David Wu.

Good afternoon.

Well, congratulations on an almost break-even quarter.

I have three questions.

The first one is the notebook unit growth has been very robust in the early part of the year.

It appeared that that seems to have slowed down, and I wondered what has happened?

Is the market lower or all your OEMs have basically launched AMD Turion notebooks?

The second one I have is on a Quad-Core.

There were something less than 400,000 units shipped and I was thinking whether the mix is sort of 80/20 where 80 is the desktop and 20 the server.

And what would that mix would be like in Q1 of '08, based on your B3 steppings going out the door?

Lastly, if I have a richer mix of server, what would that do to my gross margin?

I assume that unit costs will be higher as your factory loading comes down.

Would that be an offset?

It is Dirk here and I will take the questions in the order you cited them.

First, relative to notebook unit growth, we continue to see the PC market growth being paced by the notebook form factor and we expect notebooks unit growth to continue to be very strong year on year looking into 2008.

Going Q3 to Q4, because of the -- seasonally you often see lower notebook growth Q3 to Q4, because in fact, Q4 shipments to OEMs are in support of Q1 OEM shipments and of course that is a seasonally down quarter for notebook.

So that is the situation on notebook.

Relative to Quad-Core you asked what was the mix in our Quad-Core shipment units in Q4 between server and desktop.

Round numbers 2 to 1, desktop to server, very roughly.

And I would expect that ratio to actually increase and become more representative of the market in Q1.

That is, the ratio of desktop to server would go beyond 2 to 1 in Q1.

And, finally, you asked about the server mix, yes, clearly to the extent that the mix of our business increases in the direction of server, that is a plus for gross margins.

I assume when you say that in more normal ratio, I assume we go from 2 to 1 desktop to server to 2 to 1 server to desktop?

No, the other way.

So it was 2 to 1 desktop to server in Q4.

Yes.

Looking forward, the ratio desktop to server would increase, 3 to 1, 4 to 1 and beyond.

In round numbers, the desktop is in excess of 100 million units a year kind of market and server is more like a 14 to 15 million microprocessors unit per year market.

So the ratios long-term will head in that direction.

Okay.

Thank you.

Your next question comes from the line of Tim Luke with Lehman Brothers.

Thanks, and congratulations on the margin progress.

As you move to operating profit in the computing area, could you give us any color, Bob, on which segments you have seen move into the black between server, desktop and mobile?

And then, I was wondering with respect to your seasonal guidance, if Dirk or -- whether you have any color just on the general environment?

Obviously there has been some weakness in some of your key partners in Europe.

And obviously you have the graphics area which was somewhat slower growth perhaps in the fourth quarter that is expected to ramp in the first quarter.

If you could give us any color on how you'd expect some of the different segments to perform within the seasonal guide?

Thank you.

Sure, Tim, this is Bob.

First, thank you for the questions.

On the first one, we don't report that level of granularity of profitability, but I can give you some flavor.

Clearly our gross margin is the highest in the server business, followed by mobile, followed by desktop.

That is the profile it has been in the past.

It is today.

We expect it in the future.

So clearly as we get back with Barcelona shipping and grow that position, that actually helps the gross margin from that perspective.

The color on the other ones, Dirk can answer a little bit there to kind of give you a little bit of flavor of what's going on.

From a seasonality, we're still believing it's some place between 5 and 10% down quarter, between fourth quarter and first quarter.

That's about all I'll say at this point in time.

It is some place in that zone.

But the graphics business would be up sequentially or not necessarily?

No, it has a seasonal issue, too, so it will have a little bit of a down tick also.

It is a little bit less of that range.

It is more on the lower end of the range but it's still down, quarter on quarter, in a seasonal pattern.

And what about service, given the ramp, is that seasonal as well?

There is a little bit of seasonality, but clearly as we get more product out there we hope we will actually be able to power through the seasonality issue and gain some share in that space.

Just on the environment?

Yes, Tim, you asked specifically about Europe.

We actually saw pretty good command in Europe in Q4 and we're not seeing anything extraordinary on the negative side beyond normal seasonality in Europe as we head early into Q1.

And more broadly on that and the inventories that you see just in the industry?

I would echo the same comments worldwide.

We saw a pretty healthy environment in Q4.

We're not seeing anything substantially different than what Bob referenced as normal seasonality in Q1.

Clearly with all of the economic noise in the system we're looking very keenly and constantly at the environment, but again, haven't seen any substantial change from norm.

As I said in my prepared remarks, we had record distribution, microprocessor sales.

They went out in the quarter with very controlled inventories, I'll call it from that standpoint.

So a very different view than a year ago.

Lastly if I may, for Hector, just if you have any color on what timeline we should think about for you being potentially able to provide us any updates on the asset smart strategies and how you think about that evolving?

Thank you.

No, Tim, I wish I could.

All I can tell you is that I'm more excited than I've been on this issue because it looks to us as a strategy that is really key and very important.

We made progress on it.

And as soon as we can we are going to be able to tell you -- we'll be delighted to tell you a lot of the details on it.

And that's all I can tell you right now.

Thanks a lot, guys.

Thanks, Tim.

Your next question comes from Krishna Shankar of JMP Securities.

Yes, congratulations on moving towards operating profitability.

I had a couple of questions on Barcelona.

Hector, you mentioned that the B3 rev is out of the fab and it looks good.

What things need to happen between now and the end of the quarter when your customers will be sampling platforms?

And can you sort of give us an update on both the speed ramp profile for Barcelona, as well as the Phenom products going forward with the B3 subdivision?

I'm going to ask Dirk to take that.

He is very, very familiar with this, so, Dirk?

Sure, I'd be happy to.

As Hector said, we have got B3 material out of the fab and we're putting it through its paces internally.

In a couple of weeks we'll be providing engineering samples to our customers, and then follow that quickly with production samples later in the quarter.

We'll be working with our server customers very diligently to accelerate as best possible the availability of their systems in the marketplace.

You'll start to see that very late in Q1 and then most of the systems early in Q2, and later into Q2.

From a speed perspective, we're focused on getting kind of the high volume mid-band power products into the market, where the top speed grade there is the 2.3 GHz part.

The higher performance band, 2.5 gig part will follow in Q2.

On the Phenom side the focus in Q2 will be largely around getting our triple-core product into the market, as well as our low-power 65-watt device into the market.

And we'll follow that up with higher speed Phenoms early in Q2.

So far the evaluation of the engineering samples shows that the PLD problem has been solved and the chips look good?

Absolutely, yes, that was a really focused issue, very easy to validate internally, so we have high confidence we're ready to go.

Thank you.

Your next question comes from the line of Chris Danely with JPMorgan.

Thanks, guys, just a quick clarification.

You said the guidance you gave for '08 at the Analysts Day is intact.

I just wanted to ask about the gross margins.

You gave the target of 46 to 50% for the year.

So, off of the current Q4 that would imply flattish gross margins in the first half and then gross margins getting pretty close to 50% in the second half of '08.

Can you just give us a sense of how you're going to maintain flattish gross margins in the first half and then how you get them to 50% in the second half?

New products.

As we said at the Analysts Day, I mean, our plan is predicated on new products across the board, whether it is in consumer graphics or the microprocessor area, followed on in the second half of the year by 45 nanometer.

So we'll move up the stack of have product offerings in all of the bands.

And it's really -- new products is the key to gross margin expansion, besides the normal things we do on a daily basis of improving costs yields and cycle time.

Bob, can you give us a sense of any kind of timeline or revenue level that would be a break-even on a net basis?

Well, as you can see from the financial statement, if you peel through it, I've got a -- there is a $90 million to $100 million of cost below the operating levels, so that's what I've got to get the operating income level to.

As you can see in the current quarter, we did better than we expected.

I kind of signaled more $2 billion versus $1.8 billion.

I'm rounding up.

So we've got to get north of $1.8 billion to get the appropriate $100 million operating income to get the net to be zero.

It would probably be in the $2 billion zone.

That makes a lot of sense.

And then last question for either Dirk or Hector, I guess, guys, from a broader sense what are your sort of goals for market share and profitability in the various segments?

In other words, are you maybe pulling back a little bit here and trying to, I guess, shore up the profitability, rather than go for market share in the various segments?

Do you feel like you have a certain advantage in one?

Can you just give us a little bit of color there on your goals?

Well, our number one goal operationally, we said it before, we said in the fourth quarter, and we'll say it again and again and again, so that all of us know it, is we got to return to profitability as soon as we can.

We believe we have a plan that will let us do that in the second half of the year, beginning with the third quarter.

And our level of confidence is high.

But at the same time we also want to make sure that it is understood, or also very parallel to that is to serve our customers.

Our customers are going to ask us for things that they want and need.

We want to make sure we have the capability in place to do that.

Having said that, though, I think it is important to know that because our focus is return to profitability, that means we're not going after unit share just for the sake of unit share.

We're going to make sure that that is served and making sure our customers get what they want.

Great.

Thank you very much.

Your next question comes from the line of Ross Seymore of Deutsche Bank.

Thanks, guys, and also congrats on getting closer to break-even.

On the profitability in the first quarter, Bob, could you give us an idea of what you think gross margin is going to do or at least the puts and takes for that metric?

Yes, clearly, you know, if you start at the topline we have a little bit of pressure because we're in a seasonally challenged quarter.

So I'll call revenue as a little on the south side of the equation.

Clearly we continue to have new products in the mix, so that offsets some of that seasonality issue.

And new products, I would say, almost exclusive -- in total, have higher margins than old products.

In a general statement I call it from that perspective.

We kind of get a little bit of a plus-minus issue to kind of work our way through to be relatively in the same zone.

Okay.

And the SG&A, or the OpEx rising sequentially in the quarters, can you talk us through why that is happening given that the focus on returning to profitability?

There is a few things we did in the fourth quarter.

As an example.

We did a forced shutdown, made people take vacation.

We're not making them do that in the first quarter.

So there is a few things that we did from that perspective.

We're also trying to ramp as quickly as possible 45 nanometer, starting up Fab 38, and we continue to try to execute as quickly as possible to get new products out there.

So, we're making those appropriate investments as prudently as possible, but right now our plan is not to be flat.

It's got a little bit of growth.

Last one for me an the ASP side, you mentioned that went up 4% sequentially -- sorry about that.

You mentioned that went up 4% sequentially in ASPs.

Was that only because of mix or was there actually some apples-to-apples price increases that you put through?

We actually -- if you kind of look at it, it is a little bit of both, but the bigger piece of the equation is actually just improvement in the product segment of improving the ASPs.

So not just the mix of how much servers of the total, but actually improving the ASPs in desktop.

Great.

Thank you.

Your next question comes from the line of Srini Pajjuri of Merrill Lynch.

Hi.

Hector, just quickly, I guess, Intel yesterday they said their CapEx was going to be up for the year and yours looks like it's going to be down significantly.

I guess as you move into the second half of the year, given your capacity plans, are you concerned at all about Intel maybe putting a bit more pressure on the pricing side?

Let me tell you my view of that.

I think that, first of all, as I said before, and it is really critical to hopefully grasp the following, is that the combination of Fab 36 and the Fab 38 addendum that we have and the Charter gives us a lot of flexibility to increase unit capacity, if we need to.

But we, thanks to the tremendous productivity of Fab 36, we are in a position to serve a unit growth, that Bob mentioned, that we're counting on for next year, and be able to meet the needs of our customers.

We think we're managing our capacity well and so forth.

But I also don't think that there is an environment where there is an overemphasis on pricing pressure.

We have not seen it.

It doesn't mean it won't happen, and frankly we'll have to wait until we're closer to the second half to be able to answer your question accurately.

Okay.

And just one clarification on the OpEx front, post Q1, obviously you said Q1 is going to be up 5%.

Do you see any more opportunity to bring it down further or are you going to stay at that level?

More than likely stay at that level.

I mean, we continue to sharpen our pencil and try to be more efficient in every area as possible.

But we've done a lot of that work throughout '07, so it's -- I don't see any significant decrease in any area.

It's really trying to get to no growth and reposition it in the appropriate areas where we can get a big return on it.

Thank you.

Your next question comes from the line of David Wong of Wachovia.

Thanks very much.

It was very impressive the number of server chips you shipped including the number of Quad-Cores.

Now are you under any obligation to replace any of the original Quad-Cores that you shipped, given that you've got a stepping that seems -- has some fixes associated with it?

The answer to that first order is no.

There is a few instances where we have agreed with customers we'll do some swaps but that's a minor part of the overall shipments that we had.

However, so therefore -- but the Quad-Cores that you have already shipped on the server front, they aren't being shipped in end systems.

Is that correct?

They are being shipped in end systems into targeted large cluster installations.

I see.

And the last thing, your processor -- server processor shipments at 22% growth was it roughly the same growth for 4-way and 2-way server chips or was one greater than the other?

I don't think we get quite that specific in our disclosures.

Okay.

Thanks.

Sure.

Your next question comes from the line of JoAnne Feeney of FTN Midwest.

Thanks.

And congratulations on a great quarter.

A couple of more detail thoughts on the AMP front.

So, I'm wondering whether within the mix of ASPs up 4% whether you could clarify the different dynamics going on in the notebook space versus the desktop space?

Hi, JoAnne, it's Dirk here.

Notebook ASPs were first order flat.

Desktop ASPs were up a bit largely driven by mix A contributor to that was additional Quad-Core shipments in the quarter.

And then overall ASPs, of course, got some lift due to increased server business in the quarter.

That's great.

Thank you for that.

And then, on the Barcelona progress, I am wondering if the first quarter shipment outlook is going to exhaust these earlier version of B2 stepping, or will you still have some of those to send out the door in Q2?

And perhaps you can elaborate how much of the B3 might be going out the door in Q1 as a proportion of the total?

Good question, JoAnne.

Let me remind everybody that the issue with B2 can be mitigated with a very simple to implement LINUX kernel fix, which is something that is very practical to do in targeted big cluster installations.

And because of that, for those sort of customers, B2 is fine It was fine in Q4.

It will be continue to be fine in Q1.

So we'll in fact ship lots more B2 product in the current quarter.

And then the ramp of B3 really starts late in the quarter as we start bringing online our Tier 1 OEMs.

And so then, I mean, presumably, you'll be wanting to produce lots more of the B3 than the B2 and that would probably tend to fill up your fabs more.

Should we expect a gross margin expansion from that greater capacity utilization?

I would just reference you back JoAnne to the comments that Bob made.

We have the puts and takes, overall unit volume being down in light of seasonality, and then new products helping us in the other directions.

And then one last question, if I could.

Overall I'm wondering how much unit growth your current capacity could support for 2008?

Well, as we -- this is Bob, JoAnne -- as we showed at the Analysts Day, Doug showed that.

I mean we got pretty respectable unit increase capacity pushing in the, I'll call it, 80 to 90 million units capability this year, through a combination of our own factories and Charter, which of course you toggle up and down.

So I mean, we've got pretty good respectable unit growth to support the market's 15% growth, plus.

The only other comment I would make, JoAnne, is, remember the B2 inventory also services the desktop.

So I mean, that inventory is not exclusive for servers.

That's in the current quarter, that is what goes into desktop.

And that is what will happen also in the first quarter.

And, therefore, our factory was -- we built B2 inventory to actually service the desktop market.

Okay.

That's helpful.

Thanks very much.

Your next question comes from the line of John Pitzer of Credit Suisse.

Thanks, this is Amit calling in for John.

I was wondering, can you just give us update on your 45 nanometer run?

You said that, I think you have silicon working.

Do you still expect to ship products at the end of '08 first half of '09?

Just any color you can give there.

Good question.

Dirk here.

We have got internal samples of our 45 nanometer microprocessors.

We're putting them through their paces currently, and we're on track to the plans we talked about in the past, which is to start our ramp in the first half of this year and ship revenue product in the second half of this year.

Okay.

Thanks.

And then also just thinking a little longer term, I know you announced a while back to build a fab in upstate New York.

Is it too early to give color on, A., are you still planning to go ahead with those plans?

When would that spending start?

Or is that hey, we'll see how the market goes over the next couple of years, but we have capacity for '08?

Just anything you can give on how you're thinking about that?

There has been no change in our plans.

We've had the opportunity, the window is until the summer of 2009 for us to make the decision.

We believe that it's going to be exciting to be able to demonstrate that the growth and share growth and the opportunities for us is going to demand that we do actually execute on that plan.

So no change, and I have to say that we look forward to being able to do it.

Okay.

Thank you very much.

Your next question comes from the line of Mark Lipacis of Morgan Stanley.

Thank you for taking my question.

Perhaps a question for Dirk.

You talked about the B3 stepping getting put through the paces internally.

What is the risk that the new stepping has some type of a bug that needs more rework?

Thank you.

Well first of all, I'll say the risk is that by changing the design we inadvertently broke something is incredibly small.

I mean, this is a very simple implement risk -- a fix.

The risk is there is something else lurking in the design is not zero, but small.

The fact of the matter is these are incredibly complicated devices that, if you look at any microprocessor errata sheet you do find issues, but, again, we're pretty confident that the design is solid.

The B2 version has actually undergone substantial validation by all of our OEMs so we're quite confident of where we sit relative to hitting the plans I talked about earlier.

Great.

Thank you very much.

Your next question comes from the line of John Lau of Jefferies and Company.

Great, thank you.

I wanted to take a step back on some of the more macro conditions and see what your outlook is for 2008.

We've heard a lot of commentary.

Do you see any concerns as you go into this new year in terms of excess inventory or double ordering?

And then follow up with your outlook for 2008 in terms of what the industry is going to do, double-digits?

And I have a follow-up on that.

Thank you.

Dirk and Bob may have some comments to add, but we are very cognizant, as Dirk pointed out, of all of the trepidation that is going on in the world about the economy, both in the U.S.

and on a global perspective next year.

But I have to say that we're in a unique segment of the market -- it is called the microprocessor market -- where the need to drive the economic engines of growth in all of the segments of the world all the way from agriculture to automotive to computing, et cetera, are incredibly demanding.

And the emerging markets in particularly, Eastern Europe, China, Middle East, Africa, et cetera, are in such a need of infrastructure growth and economic growth that we see those markets even as a slow-down from 10% growth to 8% in some of those regions, we're still talking about a significantly strong and healthy growth.

So as Dirk pointed out, we're alert as a management team on top of every single change that occurs, to ensure that if anything could affect our business, we can react as quickly as we can.

But the outlook for our business, and I want to make sure the microprocessor business it has to be very positive.

I think the need for in the world economy for that to exist, we're optimistic.

And at this point in time we have not seen anything, yet, that would indicate that not to be the case.

Hector, as a follow-up, you mentioned flexibility.

Are you -- what would be the average response time for you to modulate your capacity as you're seeing demand build up?

How quickly could you ramp up your flexible capacity to respond to that?

It is a function of the size of the increment.

We could ramp == I mean we could adjust our capacity in the 5 to 10% range rather quickly.

By quickly, I mean, literally 30 days or so.

But you go beyond that and it gets a little bit longer.

What I think within the range of reasonableness for an expected growth beyond what we expect, I think we are in pretty good shape.

Great, thank you.

Your next question comes from the line of Doug Freedman of American Technologies Research.

Thanks for taking my call.

A couple of questions for you.

I'm not sure who wants to handle this.

If I look at the segment reporting, it looks like the Graphics segment didn't improve its profitability.

Can you talk to what went on there and when you're expected to see some improvement in that segment?

Yes, on flat -- obviously flat revenue makes it a little bit challenging from that standpoint.

It's really more just a function of inventory, old products, new products, kind of working their way through.

The pressure was a little bit at gross margin to cause the profitability to slip from a $3 million loss to a $12 million loss.

All right.

And when do you see that sort of starting -- when are the new products thought to be ramping that you should see the benefits from their gross margins?

We'll see that beginning and in the first quarter, and continuing strongly in the second and third, which are their two big quarters in the graphics space.

So our product lineup continues to get refreshed with new product coming out on a pretty consistent cadence, which definitely will close that gap.

But in that business it is, I'll call it less an ASP issue, you don't see a lot of ASP movement.

It is really new products and get the volume on the new products.

Dirk, you want to add anything?

Yes, just to reiterate Bob's point, a lot of what you saw Q3 to Q4, really to put into context to Q3 and Q4, and the answer is just inventory evaluation fluctuation across really all three of those quarters.

Looking forward, as Bob said, we're pretty bullish about the response the marketplace has on the 670 product.

We come out with the 680 product in Q1.

Very optimistic about our OEM share growth prospects based on design wins that are already awarded.

So, looking forward we expect to grow share.

All right.

Dirk, could you comment a little bit on the market that you participate in is very driven by platform wins.

Have you seen your customer base waver at all given the issues and execution you've had on the Quad-Core product in the market?

And any -- since that is sort of the visibility that you have going forward, can you update us a little bit on where you stand on some of the major platform wins?

Is your question server-specific?

Server and high-performance desktop.

Okay.

Relative to server, the neat thing about Barcelona is that it plugs into pre-existing Opteron platforms.

So, we've got just a huge breadth of platforms already in existence across all the big OEMs.

Those platforms are all ready for Barcelona.

Some of those platforms are being, in fact, updated to take advantage of the so-called split power plane capability of that product.

So, the short answer on server is, great platform breadth that Barcelona will be able to ramp right into.

On the client side of the business, we've actually seen our design win activity continue to increase.

As an example, the upcoming PUMA platform has the most design wins behind it of any platform we've ever seen, desktop or notebook.

There's an excess of 100 design wins across the all the big OEMs on that platform.

On our Quad-Core desktop platform we're seeing very good uptake and really happy with some of the uptake we're seeing on the commercial side of the desktop business there from some of our big OEMs.

So, if anything, I see our platform base in '08 being broader across the board than what it was going into '07.

Great.

Bob, if I could, a question for you.

We're getting hopefully closer to the asset smart or asset light plan.

Without knowing what the details are behind that plan, or what it entails, is it safe to assume that there is some sort of a cash infusion that comes as a result of those actions?

And, if so, can you talk about where the priorities are for the Company, as far as the use of cash?

Are you looking to sort of reduce the debt burden on the Company?

Are there -- if you talked to that, that would be helpful.

I wish I could be more helpful but right now I think that is inappropriate to kind of discuss if there is cash associated with what we're working on in asset smart.

Clearly, I continue to be focused on fixing the balance sheet, and we'll fix the balance sheet in however we do it.

I have one more thing then, if I could.

Guidance last quarter was for OpEx to increase and it didn't.

Should we think that your -- the Company for the last few quarters has sort of been conservative on their guidance.

Is that something that we should carry forward for the next few quarters that you guys are going to be operationally conservative?

I'm not going to answer that question, to be honest.

I mean, we try to call it the way we see it.

We do things to modify and adjust accordingly in the quarter.

A lot of things happen from both a cost to revenue, inventory management, et cetera.

But we're trying to give our best shot of what we anticipate -- what our plan is at this moment in time and then adjust accordingly.

All right.

Great.

Thank you.

Operator, we'll take two more, please.

Your next question comes from Glen Yeung of Citigroup.

Hi, this is Peter for Glen Yeung.

It sounds like for your 2008 gross margin progression, I guess the question was asked a little bit around 44%, first half of the year, and maybe getting closer to 50 in the second half.

Can you give me a sense of how much of that would be volume-based?

In other words, how much of the progression up from first half to second half is kind of predicated on the typical increase seasonally in volumes?

And I guess we have some pretty healthy year-on-year growth that we're expecting as well.

Well just to remind everyone, the typical pattern, which has been following relatively, is 55% of the volume of a given year is in the back half of the year, 45% is in the first half of the year.

So that is just a natural progression of however many units you want to cast of what happens in the two periods.

Really, our units are an important part of the equation, but what's really important is traction on the new products.

The new products are what's going to drive the margin improvement more than just shipping more units from that perspective.

So it's really the -- all the new product that we're coming out with in the microprocessor space, graphic space, and the CE space, that is really going to drive the margin improvement on a quarter by quarter basis.

So to follow on to that, if I were to -- let's say that just arguably the market grows somewhat below the 15%, how comfortable do you feel that with the new products you're introducing you can get enough movement up the price stacks that you're still getting to the midpoint of maybe your gross margin guidance?

I guess that's really what I'm thinking about.

We're pretty confident.

I mean, we're pretty confident based upon a lot of these products are not, I'll call it, early in the design stage.

They're actually in the tail end of the design stage.

Like PUMA is a good example.

That product is not out there in the marketplace, but as Dirk said, that platform is getting designed in quite a bit.

There will be incremental margin associated with selling that platform.

Our confidence level is pretty high that we'll maintain and improve gross margin as we go through 2008.

Can I sneak in one last thing quickly?

You may actually not have an answer to this but I'm just curious.

When you think about -- I know you have better visibility to how many platforms that you're designed into, but especially on the server side, do you have any visibility into, let's say the size of your installed base?

And I guess, in the first half of the year, how having Quad-Core might sell into the current installed base, and if you how a kind of follow-on might be an expansion of your installed base?

In other words, do you have -- how much of what you're thinking about is sales into your current installed base versus expansion of the installed base, is what I'm looking for?

Dirk, here, it is hard to answer that question quantitatively, but what I can tell you is that within the enterprise community there certain are a number of enterprises that have evaluated and adopted wholesale our Opteron technology and have then therefore looking eagerly for Barcelona.

So, clearly those would be the enterprises into which we ramp Barcelona the most quickly.

But we also plan to gain new customers in the enterprise with Barcelona and expand our installed base.

Great.

That is helpful.

Thank you.

Your final question comes from the line of Cody Acree with Stifel Nicolaus.

Thanks for letting me in, guys.

Dirk, could we go back to comments you made about design wins in the Graphics segment?

Can you give me more color to where you're seeing success there?

Sure, what I think it is best to do is to reference you back to the presentation that Rick Bergman gave at the Analysts Conference.

I think he had a specific slide that actually provided numeric granularity there.

All I can tell you there is that across both desktop and notebook, we've gotten substantial design win activity and expect actually to have a fairly dominant share position on an OEM level in both desktop and notebook as platforms get refreshed in the spring.

As we head out of into Q2 and into the summer months we should be seeing that drop to your bottom line?

Exactly.

Great.

And just very lastly Bob, -- for Bob -- can you give us any help on what you expect for taxes through '08?

Roughly $15 million a quarter from that perspective of tax expense, which is pretty much what I talked to you about at the Analysts Day in December.

But right around that $15 million a quarter.

Great.

Thanks and congrats,

Thank you.

Okay.

Well we would like to thank everybody for participating in the call and there will be a webcast replay and a telephone replay of this call.

Thank you.

Thank you all for joining.

This concludes today's AMD earnings call.

You may now disconnect.