超微半導體 (AMD) 2008 Q1 法說會逐字稿

Good afternoon.

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

At this time, I'd like to welcome everybody to AMD's first quarter 2008 earnings conference call.

(OPERATOR INSTRUCTIONS).

As a reminder, this conference is being recorded today.

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

Ruth Cotter, Director of Investor Relations for AMD.

Please go ahead.

Thank you, and welcome to AMD's first quarter earnings conference call.

Our participants today are Hector Ruiz, our Chairman of the Board and CEO, Dirk Meyer, our President and COO, and Bob Rivet, our CFO.

This is a live call and will be replayed via webcast on amd.com.

There will also be a telephone replay.

The U.S.

number is 888-266-2081.

The international replay number is 703-925-2533.

The access code for both is 1221534.

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

I would like to call your attention to our Q2, 2008 earnings quiet time, which will begin at the close of business on Friday, June 13.

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

Investors are cautioned that those 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.

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

Therefore we 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 expectations.

You'll find detailed discussions in our most recent SEC filing, AMD's annual report on form 10K for the year-ended December 29, 2007.

Now with that, I'd like to hand the call over to Bob Rivet, our CFO .

Thank you, Ruth.

Good afternoon everyone.

The first quarter 2008 was a difficult start to the year for AMD.

In a seasonally week quarter, amplified by a challenging global economic environment for consumers, and softening demand for our previous generation products, we experienced lower than expected revenues across each of our business segments.

And while we are obviously unhappy with these results for the quarter, looking ahead we are pleased with the customer response to our new offerings across all of our major product segments.

In our graphics business, independent benchmarks continue to show the strong performance and value of our AMD radeon HT 3000 series of graphics products.

In our microprocessor business, our innovative triple core technology is gaining traction for its unique performance and value proposition.

With our out coming puma and perseus platforms in the second quarter, we continue to execute our desktop and notebook strategy with solid customer support.

And we are particularly pleased with our customer response to the B3 version of our quad core AMD opteron processors in the last few weeks of the first quarter.

With 23 SKUs available from multiple OEMs, including HP and Dell, with another tier one OEM coming onboard in the second quarter.

All told, it was a quarter characterized by poor top line performance, but a strong new product refresh in all of our major businesses that should pay solid dividends as the year progresses.

Total AMD revenue for the quarter was $1.5 billion, down 15% sequentially and up 22% year-over-year.

We recorded a net loss of $0.59 per share in the quarter, including a charge of $0.08 per share related to the ATI acquisition.

Gross margin in the quarter was 42%, a two-point decline from the prior quarter due largely to lower microprocessor unit shipments and an inventory drain on older generation products.

Our world class manufacturing facility in Dresden continues to set benchmarks for operating performance, including yields and cycle types.

We continue to execute our 45 nanometer strategy according to plan and we will start production at mature yields this summer.

Total operating expenses, R&D and SG&A were up 6% over the prior quarter, in line with guidance.

Cash flow from operation was a positive $16 million for the quarter and adjusted EBITDA was a positive $54 million.

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

Capital expenditures came in at $323 million for the quarter.

Now switching to the business segments.

Computing solution revenue was $1.194 billion in the first quarter, down 15% from the prior quarter.

The quarter-over-quarter decline was due primarily to lower microprocessor unit shipments across server, desktop and notebook product lines in a highly competitive market.

Quad core processor shipments were up while microprocessor ASPs were flat.

Operating loss for the computing solutions group was $160 million.

Graphics segment revenue was $230 million, down 11% sequentially and up 17% year-over-year.

Due to the strength of our new product mix, gross margins improved, keeping operating losses flat at $11 million despite the drop in sales.

Consumer electronics segments revenue was $81 million, down 26% from the prior quarter, the result of seasonally down sales of products for our handheld devices and DTV solutions.

The consumer electronics segment reported an operating loss of $8 million in the quarter.

Now let me turn to the balance sheet.

Our cash and marketable security balance at the end of the quarter was $1.753 billion, down $136 million from the prior quarter.

We sold some 200 million tools in the quarter, generating proceeds of approximately $50 million.

Remaining tool sale opportunities and potential administrative land and building sales continued to represent more than $400 million of cash generating opportunities in the future.

With days of inventory at 81 days, total inventory declined in the quarter to $785 million.

In accounts receivable, DSOs remained flat at 33 days.

Now let's turn to the outlook.

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

In a seasonally down second quarter, AMD expects revenue to decrease in line with seasonality.

Operating expenses are expected to be flat to slightly down from the first quarter, as we see early effects of our cost reduction programs.

Acquisition related charges are expected to be approximately $50 million.

We expect to have a tax expense of approximately $5 million in the quarter.

Depreciation and amortization expected to be approximately $300 million.

We reduced our planned capital expenditures for the year to approximately $900 million, with our investment and focus primarily on 45 nanometer.

As previously announced, we will take a restructuring charge in the second quarter.

Details of the amount will be disclosed as they become available.

In summary, we had another challenging quarter, and in the context of an uncertain economic environment, we are taking big steps, as quickly as possible as we can reduce our costs and restructure our business for future success.

At this point I'll turn it over to Hector for some brief closing comments.

Thank you, Bob.

There are two things that Bob alluded to in his remarks that I want to underline that are current in Q1 that are very important for us as a company.

One of them is the continuation of great performance by our manufacturing operations in Dresden, Penang, Singapore and Suzhou.

And the other one is the general availability of our quad core AMD Opteron processors.

As evidenced by the announcement of systems by our tier 1 customers, HP and Dell, and later on this quarter, another tier one customer.

However, it is clear that our business environment has changed from just the second half of last year.

Where we saw some of our non-core businesses on a path to growth and profitability that is now questionable.

As a result, we are embarking on a significant restructuring of our company to address the following.

We need to intensively scrutinize all of our businesses in order to ensure that our core X86 and graphics products are on a healthy path to leadership and profitability.

We also need to intensely scrutinize our non-core businesses and revisit their strategic fit into our plans, and their path to growth and profitability.

Absent these, we will exit those businesses.

We will complete the 10% workforce reduction just announced, as one of the elements of a program to reduce our break even point by a couple hundred million dollars from where we are today.

All of these efforts are key to repositioning the company, not just with a reduced break even point, but more importantly, as one is strategically positioned to sustainability grow and lead in those core areas I mentioned before.

We have made significant progress in our assets marked strategy and I'm personally driving the software intensely and I'm very hopeful that we will be able to communicate details of these rather complex efforts in the near future.

At that time, we believe we will also have an opportunity to further restructure the company for increased focus and added flexibility while placing us in a better position to deliver sustainable, profitable growth.

We have not deviated from our goal of achieving profitability in the third quarter of this year.

And our commitment to you is that we will take the appropriate actions necessary to achieve that.

Thank you for your patience and support and let me turn it over to Ruth for the question and answer.

Matt, we would now like to open the call for questions please.

If you could poll the audience

Thank you Ms.

Cotter.

(OPERATOR INSTRUCTIONS).

Our first question is from Srini Pajjuri of Merrill Lynch.

Your question please.

Thank you.

Bob, after you're done with the restructuring, can you help us understand where your OpEx will be maybe let's say by Q4 of this year?

As Hector outlined, we're trying to reduce the break even point to get us in a zone of more -- we break even at $1.5 billion.

We probably won't totally be there at the fourth quarter level, but that translation would mean fairly significant cost reductions in the order of 25 to 50 million per quarter less by the fourth quarter versus the current run rates of today.

Okay.

Don't want to be overly specific because we're working it both in manufacturing and OpEx, but I think that's a reasonable expectation of what we're modelling and working on right now is 25 to 50 by the fourth quarter.

Okay, and Hector, when you mentioned that you're going to take another look at the non-core businesses, is it part of the restructuring that you announced or is it something knew that you're talking about?

This is something in addition to what we just talked about.

Okay, and any timeframe you can put around it?

We are on a path to do this as quickly as we can and we'll announce it as soon as we know.

We're on a fast pace.

Okay, and one final question for Bob.

When you say seasonal, I guess I just want to understand, because your seasonality has been all over the place, and also, it looks like you're ramping several new products.

My question is, why would you not grow a little better than seasonal in Q2?

Thank you.

Seasonal from our perspective and to me, it's a combination of what our competitor says and us, because we are the industry, second quarter kind of the best any quarter has been in over a near term period of time is about 0%.

It's been down as much as 10% and the average has been about 4 to 5.

Right now I don't, we don't see any reason, even though we do have a good product line-up, to push that any harder than what the math says.

Also based on what our competitor says.

Thanks.

Our next question is from Patrick Wang of Wedbush Morgan, your question please?

Hey guys.

Just a couple questions.

First off, I was looking at the profitability of the different business units here and it appears that operating margins, just on a unit to unit basis has gotten a little bit worse in computing.

Can you give us some color, just to get us a little bit more comfortable in terms of operating margin at the computing business?

Well clearly volume drives that margin pretty significantly.

That is a fixed cost business from our perspective and clearly you drop the volume and you've got that fixed cost issue that kind of plays through.

So I'm not sure exactly what else I can say on that.

You know, clearly with the product refresh that we've started to introduce at the tail end of the first quarter, and the continuation of the platform strategy we have, we feel like we will continue to make progress and grow the top line, reduce the cost per unit, particularly when we introduce 45 nanometer in the back half of the year, from end volume production, that you'll see cost per units drop and margin improve.

And that's expected in the back half of this year?

Correct.

Okay and then just some color on graphics.

Because I mean, I think commentary on the product portfolio on the graphics side is that you do have a stronger line-up there.

Any color into when that, start seeing improvement?

Hi Patrick, it's Dirk here.

So what we saw in the quarter actually was better margins on the graphics side.

Again, driven by stronger products and a mixed shift that was favorable in that dimension.

Offset a little bit by pricing pressure on the low end.

Looking forward, we clearly expect on the strength of products to start to grow share across the board and see that business improve.

Okay, great thanks.

And then just one last question.

On 45 nanometer, I know you said that you expect production of that material sometime in the summer.

Any more color you can provide there just to help us better understand what's happening?

Dirk, again, here, so we'll start the production ramp in the summertime and start to ship products and volume in Q4.

Okay.

Great thank you.

Your next question is from Krishna Shankar of JMP Securities.

Your question, please?

Yes, previously you'd been talking about a $2 billion break even and now I think you're seeing $1.5 billion or 1.8?

Hector talked about a $200 million reduction in the break even point.

Can you clarify that for us?

1.5 is the target that we're working on to reduce.

So basically, I'll keep it simple.

It's the current quarter, the first quarter we just repeated, that the $240 million loss would be zero.

That's what we're working our way toward.

We've taken a much more aggressive stance than maybe interpreted in the past.

I see, and then in graphics, you did have a pretty good mix with the 3,000 product family and yet the business was not profitable.

Can you talk about what meets that to becoming more profitable going forward?

Dirk again here, high order is more volume generated through share gains.

We have pretty good confidence based on two things that we'll get there.

First of all as we told the group at the December analyst conference, we did a very, we're very effective at locking down OEM design wins on the mobile platforms, which refresh here in Q2.

So a lot of that is locked and then beyond that, we've again, got a strong product line and ought to be able to grow our share in the desktop space, both on the OEM side and on the add in board side.

And the final question on Barcelona.

Sounds like that will be a key vector in terms of profitability and margins, what's the response from customers and are you competing there in terms of performance, what are sort of the metrics you're trying to win back business given your late entry into the market?

The response from customers has been enthusiastic, as has the response from end users.

You know, we've talked about, in the past, some of the marquis cluster wins that we generated and served actually with Rev B 2 of the product.

Rev B 3 is stronger.

We'll be able to increase frequency over time.

The product is terrific in the high performance computing space, where floating point intensive applications reside and in addition in virtualized data centers, the product really shines.

HP and Dell have launched, so that product is available.

You can go to the HP website and see the product that's available with AMD product.

And my final question's for Hector, you talked about the asset life strategy and having details on that soon, I'm trying to reconcile that with your sort of excellent performance in manufacturing.

Can you give us a little more clarity on what asset life might look like either in terms of shared ownership or AMD becoming, to some extent, I want a little more color on your asset light strategy?

I know you'd like it, and I feel terrible, but I can't provide you details that I'd love to.

I hope to do it soon.

The obvious thing is that what gives us an opportunity to do things creative is the fact that we have incredibly strong, world class benchmark manufacturing assets.

And at this point in time, and I hope to tell you more soon.

Thank you.

Our next question is from Cody Acree of Stifel Nicholas.

Your question please?

Thanks a lot.

Gross margins for the second quarter, any color on direction or magnitude?

Well, this is Bob, clearly in a seasonally down quarter, if you don't have the top line, it makes it a little more challenging, but as I said, I'd like to give you a framework.

I don't give color on exactly what's going to happen, so we don't give that kind of guidance.

But I'd like you to think of it in two dimensions.

The first dimension is we do have a bunch of new products.

We only had weeks of the B 3 material, it would take place for the first quarter versus we'll have a full 13 weeks in the second quarter, and the same thing goes in graphics.

In graphics we continue to be excited about the new products, we continue to have more new products coming, so those are the positives of the quarter.

The negatives is the seasonality, the unit pressure you have of clients, particularly for us in the consumer space, is a little bit of a challenge.

So there's a plus and there's a minus.

You need to quantify what you think that is.

Maybe could you also talk, obviously this, this may also be an answer you can't give, but talking about the break even number, if you can't talk about specifics, at least maybe the drivers that get you there.

At $1.5 billion you gave us a little bit of OpEx guidance, what kind of gross margins do we need to be getting to or at least what kind of mix shift helps you get to the gross margin numbers to get to that break even level?

In the current business model, so I'll call it pre-asset smart, we have to be using fourth quarter as a proxy.

We have to be pushing the north of 45% kind of level.

Clearly though we're trying to reduce the burden in the OpEx category and also see if there's some room we can in reducing the cost of manufacturing.

So it's easier to get to the north of 45.

So kind of the, but in a perfect world, we're going to try to shift fixed costs to variable costs so that we can weather storms a lot easier at $1.5 billion than we currently are today.

Okay, and lastly, you mentioned 13 weeks of B 3 and GPUs ramping in, when are volumes large enough that we really start to see some drop through to the bottom line to impact on operating profits?

Is it late, late in the year or is it, is it sooner?

It's really this summer.

So to me, we'll see server improvements right now in the current quarter, and continuing in the third quarter and fourth quarter.

So, it's definitely happening.

Desktop is happening right now.

Also as we continue to increase the line-up of phenoms available.

Triple core is another opportunity that we just started again in the first quarter that will continue.

So really that, that quad core architecture that we also use for triple core will have good benefit right away.

The wild card issue is the environment we're in, in the consumer space, which is the world we play in mostly.

Perfect, thanks, guys.

Next question from David Wu of Global Capital.

Your question please?

Yes, I was wondering about the fact that the Puma Platform is also coming out, would that enable you to turn that notebook volume around since that's a completely new platform, and in the second quarter, considering your line-up of products, would be surprised if you're market share would not go up in the calendar quarter relative to what you had suffered in Q1 because of product freshness issue.

Can you talk about that a little bit and the other one I was wondering about is, Hector was mentioning about what were the core technology?

And I think graphics was one of them, but there, the graphics portfolio that you have today is a very broad one and can you dissect or discard part of the graphics core without hurting the part that you want to keep?

And lastly, maybe Dirk can help me on this score, the Barcelona platform apparently is a straight 45 nanometer, the ice rink of the, sorry, Shanghai platforms of straight 45 nanometer, the ice rink of today's Opteron, but I was wondering whether you made a change in architecture a bit to help your initial performance by having say a four issue per clock kind of thing as opposed to current generations three issue.

First of all with respect to puma, the way I would characterize that one is as follows.

First of all, that platform has enjoyed great design win success across our customer-base.

Certainly in our historic consumer segment, but also in the SMB area.

It'll be hitting the market in Q2.

Clearly relative to notebook share, the exposure we have to the consumer market makes us swing a little but more seasonality than the overall notebook market, and due to that, we've got opportunity to gain serious head win in the back half of the year, again due to seasonality.

And in addition, as I said, the fact that that puma platform is also enjoying some success in the form, success in the form of design wins with SMB, gives us an opportunity to further grow our share in the back half of the year.

Okay.

You asked about, what do we consider core and what do we consider non-core?

High level, the technological foundation of our core businesses is our X86 technology together with our graphics technology and the business outlet for those is primarily computing.

Servers and PCs and markets there that are very adjacent to PCs.

Hopefully that clarifies that a little bit.

And finally you asked about Barcelona.

If I understand your question, it had to do with, are we going to be substantially changing the core when we move to Shanghai.

There are some core improvements, but not major ones.

I'd call them incremental improvements to the core.

But other improvements on the dye such as caches and so on.

I see.

Thank you.

Our next question is from Tim Luke of Lehman Brothers.

Your question please?

Thanks so much.

Just to clarify on that, you're suggesting that puma should see some volume at the end of the second quarter or you think it will be more volume in the calendar third quarter on the notebook side?

Tim, the platform refresh happens on the consumer side in what's called the back to school cycle.

That cycle typically starts with machines showing up in retail channels in North America as an example, in July and we start shipment to prepare for that in late May and June.

Okay, and just on Barcelona, you had shared some metrics in terms of units for that at the analyst day in New York, fourth quarter, first quarter, I was wondering if you had anything else to share in terms of how we should think about the ramp in terms of units or volume or revenue as you move into the second and third quarters?

Yes, and Tim, just for clarification, when you say Barcelona, I hear that being a server question, is that right?

That's right?

Rough math, our quad core server's shipments in Q1 represented about 25% of the mix, roughly.

That ought to grow quickly to 50% in the current quarter and go beyond 50% after that point in time.

Are you assuming with that you get, having seen a flat ASP overall in the first quarter, it is improved or flat or overall for the company lower in the second quarter?

Good question and first of all, the flat ASP comment was relative to the entire microprocessor product line.

Clearly to the extent that we start to grow our server volumes and improve our share in servers.

That improves our overall mix and is a good factor relative to the overall ASP and profitability of the product line.

For Hector, in framing, your expectation, you might be able to provide some incremental color on asset light in the near future, should we think about that being, say by the time you get to the core in July, being the next sort of near future, near term, event.

That would be when you might be looking to have news to share or do you think there's potential for it to move out beyond into the second half of the calendar year?

Good try, Tim.

I'm not trying to be evasive, but we're truly tremendous progress in this area and I don't want to be firm, but the near future is any time from the next 90 days to the rest of the year and I can't call you any closer than that.

Maybe it's part of that Bob, on the cash balance you got $1.75 billion of cash and taken down OpEx a little bit, how should we think about you planning for the cash balance and what's your expectation as you move through the calendar year?

Sure, clearly we're trying to run the business very cash focused to try to manage capital investments versus how much cash from operations will throw off.

Clearly that's why we're stepping up the deal with excess employees and those kind of things.

I'm trying to weather the storm and be prepared for whatever storm presents us.

Second is, we still are monetizing tools and that administrative building and land we've talked about.

That's over $400 million.

So I feel pretty good that I'm in an appropriate liquid position to manage my way through this pre-asset smart.

Thank you very much, guys.

Your next question is from John Pitzer of Credit Suisse.

Thanks for taking my question.

Just quickly on the guidance for seasonal for Q2.

If you look at some of the IDC and (inaudible) that came out for Q1, despite the macro headwinds, the overall PC unit growth was about seasonal and clearly you guys underperformed, so I'm trying to understand why you feel comfortable guiding to normal seasonal going into the June quarter given that the macro headwinds are still there.

Are you expecting a better than seasonal overall market or expecting sort of in line PC seasonality with you guys gaining share?

If you could give me some color on that, that'd be great.

Here's the way we kind of look at it.

To me, if you add up our competitor's results and our results, and just look at microprocessors sold into the marketplace, we're down about 9%.

The industry is down about 9% quarter-to-quarter, first to fourth, with is on the low end of seasonality.

Clearly we did poorly in that performance, which we believe is due to our exposure in the consumer space.

Though total PC units, an interesting phenomenon, appear to be okay, but clearly there's a lot of people very cautious.

So our position for second quarter is, we're cautious, we clearly still see, I'll call it the consumer pressures, but we don't need to forecast stronger or worse than, at this point in time, we'll just kind of try to hit it down the middle of the fairway.

And we've got a new product line-up which we believe will help us, but again, right now I need to reestablish credibility versus throwing out a big number or a small number.

Bob, so just to clarify, you hold share in a seasonal market, in the June quarter, is kind of how you're looking at things?

Again, our consumer exposure makes that a little tough, but our goal is to hold share, not lose anymore share than we have and if anything try to gain some of it back than we lost, particularly in the server space.

And then, Bob, as you take break even down another 200 from 1.7 to 1.5, is that just executing on stuff that you've already announced or do we need to see more announcements to get to that break even level?

You'll see more announcements.

There's more for you to be told on the specificity of actions.

Hector, you mentioned having world class capacity is critical to your MPU strategy, do you need to own that world class capacity, and if you didn't, do you think that would be put you at a competitive disadvantage?

First of all I don't think that the ownership of the capacity is necessarily a reflection of the leadership in technology needed.

Our partnership with IBM has demonstrated that we're able to hang in their relative to technology without having to own the R&D for example totally, we're sharing it.

I'm a strong believer that especially for us, we demonstrated in the past, we'll demonstrate it going forward that partnering with people is very important to our future and particularly in the area of technology.

Thanks, guys, appreciate it.

Our next question is from Glen Yeung of Citi.

Your question please?

Can one of you guys address the departure of your CTO.

And just whether or not that has any implications for the longer term road map, either from a design or manufacturing standpoint?

Yes, Dirk here.

Second part of the question first.

It doesn't have any implications for the road map or our ability to execute on that road map.

Beyond that, it wouldn't be appropriate for me to comment on any specific person's departure, but I can tell you we're focusing on elevating our game and fixing some of our execution problems, and in so doing, we're going to bring into the company, people with better talent and better experience, and you'll see more.

I'll cite as an example, the recent addition of a new CMO and a new CIO to the company.

Okay great.

I did notice that you bought out the ownership of Fab 36, I think it was 36, maybe just address what the strategy is there?

It's always been our plan.

When we originally set up fab 36, we did that through a process of some help from our friends, I'll call it, of the State of Saxony and MNW as minority partners and then some loans with some help from the government.

Our plan has always been, at the appropriate times and we have different sequences in time, is to take out the minority partners.

That first opportunity presented itself on April 1 and we've executed that.

It does, it will help us on the costs, our interest expense on a go forward basis and we felt it was the right thing to do and has been our plan, and every opportunity we have, we will wind our way out of those minority interests.

Thanks.

Just wanted to clarify those two things.

So next question is, I guess, for Dirk, just thinking about channel inventories of processors first, but actually more interested in graphics and what your thoughts are there, both of your inventories and your competitors, how do you feel the channel inventories sit?

On the graphics side, we've been very carefully managing the inventory levels and our AIB partners.

We feel there's absolutely no issue.

What we've got is what we plan to have, period.

Likewise on the CPU side of the business.

We don't feel like the inventories are particularly unhealthy and I will say that with the availability of B 3 late in the quarter, a lot of that product was absorbed by the channel and is out there in the sub distributors no doubt, but we don't know of anything that would cause alarm.

And actually sort of in that vein, I wondered if you saw any geographic changes over the course of the quarter.

We're a little worried Europe's getting weaker.

And again, we did see the data on PCs, that looks pretty healthy for Q1.

Just wondering if you've seen any signs at the turn of the quarter from a geographic perspective that raises any question marks.

Dirk again here, you asked about Europe specifically.

There's no question that we're hearing from our customers signs of a little bit of weakness in the Western European countries, U.K., France, et cetera.

But, that's largely offset as we understand it by strength in Eastern Europe.

So overall the market seems to be hanging in there, in Europe.

Last question, Dirk, either for you or for Hector.

Is there such a thing, your strategy on ASPs, what your intentions are for the remainder of the year.

Is this an area where you feel like you can try to hold, particularly with the new products coming out, do you feel like pricing is something you're going to have some advantage with this year.

I'll take that one, it's Dirk again, overall the pricing strategy of the company hasn't changed.

That's to deliver good value to our customer's into the market on the strength of good technology and do so in a way that is responsible financially to the company.

And generates appropriate margins.

We've got some things going for us from Q1 looking forward.

That's introduction of quad core to both our server and desktop line-ups, which clearly gives us an opportunity to play across a wider breath of the marketplace, get back in ahead of the game on the server side and have a richer mix on the desktop side, which are both positive factors on ASP.

Thanks.

That was really helpful

Our next question is from Ross Seymore of Deutsche Bank.

I think you guys mentioned there's another round of adjustments coming to get to that break even number you talked about.

Is that simultaneous with what Hector was talking about, looking at every segment, or is there a middle step between those two?

First of all, let me separate the two pieces and then Bob can come in.

One of the things I said, and let me hopefully clarify is that, we're very confident that when the time comes for us to implement our asset-smart tragedy, that we'll have the opportunity to go through another round of cost reductions relative to restructuring the company.

This will be something very much tied to the opportunity that we will have when the assets market's implemented.

But as Bob pointed out, between now and then we'll also have a continuation of other cost reduction activities, and one of them is the intense scrutiny that we're putting in our businesses to ensure, number one, that our core business has continued to be healthy and especially as it relates to leadership and profitability.

And that those businesses that are not core get really scrutinized relative to whether we want to continue it on depending on their outlook relative to growth and profitability.

Once we accomplish that, there'll be an announcement made relative to the impact that that will have in reducing our OpEx.

So is the asset smart strategy a prerequisite to the break even or is all three of them, the 10% plus the scrutinization and the asset smart?

No, the asset smart strategy is not a prerequisite to the break even.

All of the other actions are part of the continuation of reducing the break even.

Okay, and I guess the final question on the restructuring, I believe we've just hit the one-year anniversary of hearing about the asset smart or fab light strategy and really haven't seen much to do with it.

I know it's a difficult and complex strategy.

Is there any reason to believe that that scrutiny of your core and non-core businesses would happen any sooner than that sort of one year anniversary we've already run into on the fab light side?

I can assure it will happen a lot sooner.

Okay.

Moving quickly away from the cost cutting side of things, any difference in what was happening in the graphics business between the desktop and the notebook side of things?

Dirk here, could you clarify the question?

Well, in your GP you cited things, it looked like the ASPs were down, but the units were up, I wondered if there was any, if it was a mix related thing, or an apples to apples thing, especially considering some of your new product introductions.

I would think of it just as a mix related thing.

Strengthen the high end and pricing pressure on the low end, kind of offsetting each other.

Okay and then similar to an earlier question, the ASPs being flat in your microprocessor business, were there any outliers as far as the three main segment servers, desktops and notebooks, that changed quarter-over-quarter to cause that or is it really just about the same in each of the three segments?

Pretty similar across the three segments.

Not too many offsets in other words.

The data's all fairly consistent.

You know, piece by piece.

A slight improvement, slight decline, but all within the noise level of plus or minus 1%.

Okay and the last one, bit more of a housekeeping question, depreciation came in below what you guided to and it looked like it actually went down sequentially.

Can you just talk about the mechanics of how that actually drops, given your past CapEx and then, if you could remind us of full year depreciation guidance, that would be helpful too.

We continue, as we, we've been on a ramp to add additional capacity in Fab 36.

We've also, are converting Fab 30 from 200 millimeters to 300 millimeters.

We stopped production at the beginning of the fourth quarter on the 200 millimeters.

Tools have been coming in, that's where the $322 million, which is split between Fab 38 and Fab 36, but clearly I'm not turning on the tools if I don't need to execute them in the manufacturing environment.

So that's why depreciation is a little bit less.

We didn't feel like we needed to turn them all on as fast as we originally forecasted based upon the economic view and current realities of the first quarter.

From a balance throughout the year, it'll be a little bit less, we'll drift down from the levels we talked about before from guidance of $1.4 billion.

Probably at this point in time, I'd say it's probably more 1, 2.

But I'll give you more updates on a quarterly basis.

Right now I see a little bit of growth as we bring on 45 nanometer tools.

As we start in the summer 45 nanometer production.

Great thank you very much

Our next question is from Uche Orji of UBS.

Your question please?

Thank you very much.

Just a couple of questions, first of all on the graphics.

Given the line-up of products you have now, do you anticipate that you will start to regain market share through the rest of the year?

That was the first question and also secondly, at the analyst day, you showed us some mix of your share gain within the platform and I think you would gain (inaudible) off the design wins.

Can you update that for us now if possible, please?

Yes, hi, Dirk here.

First, we do anticipate gaining share across both desktop and notebook starting in Q2, and I'll say accelerating through the second half of the year.

On the notebook design win front, really the story hasn't changed from the good one that we told you back in December.

Okay.

Different question, within graphics also.

In the press release you talked about having a full line up of prior GL product.

Now granted you've not been a big player in the professional solutions market here, is this a new attempt at strategy within the professional solutions because of the margins there?

I can't speak to the new factor in the sense that ATI team has been part of AMD only for a year and a half roughly, but I can tell you there's no question that's a focus for the company, that's a big margin pool in the graphics business.

We're pretty optimistic about our ability to have bigger access to that pool, both based on two things.

One is the very good open GL drivers that we announced a couple of quarters ago, which are very robust, very solid, and offer great performance.

And number two, the capability of the hardware products themselves.

Now clearly there's a lot of other things we have to do right, specifically engagement with a couple of big tier one OEMs who really drive volume in the workstation space.

But also evangelizing our technology in enterprise and also partnering appropriate with ISVs.

Just asking a different question.

Let me switch to microprocessors.

You described the environment as competitive and yet ASPs were flat, now is it safe for us to assume that there are conditions in place now for ASPs to rise for you and for the industry through the rest of 2009.

Of course this is not, assuming that you know what Intel is going to do but from what your sense of the environment, now you've been able to give us some color in the past about what you think will happen.

Hector, any sense from your side that we are past the whole season pricing that would take pricing to stabilize right through the rest of the year?

We haven't seen that.

We called it a stable environment in the fourth quarter, or in the second half of last year, I'd call it very competitive.

We don't see any change from that, at least in the near future in the marketplace.

We expect the environment to continue to be very competitive.

In talking about ASPs, really is the ability to improve our mix with the new products that both Bob and Dirk have been talking about.

The fact that Barcelona, the quad core are ramping both in the server and the client.

And the introduction of new platforms.

All of that and our ability to ramp those volumes higher will have a bigger impact on ASPs than any minutiae on the market changes relative to the ASP environment.

So we expect, and our plans are to see stable but competitive environment in the next couple of quarters.

And just one last question.

Given that 45 nanometers will be, looking at Q4, I'll assume for the mainstream, we're now looking at the Q1 '09, for the mainstream.

Your restructured measures, will they include any other measures to reduce costs per unit?

In the meantime, I'm assuming right now that most of the effort you are going to make on the restructuring will be more on the OpEx line but will that include any other strategy to reduce cost by units?

(inaudible) -- if not between now and then, between now and 45 becomes available, I just worry that you may not be able to remain competitive against Intel.

This is Bob.

Clearly the cost reduction effort is across the board.

It's in manufacturing, I mean, we're turning over every rock to find every penny for the amount of units we ship to see if there's ways to save more pennies.

You know whether it's test time reductions, changing burn in times, everything you can imagine in the manufacturing environment to streamline flows, et cetera to save more pennies per unit.

Besides in the OpEx category of how we become more efficient in our R&D investment or in our G&A operations.

So it's an across the board type issue.

Not just waiting for 45 nanometer to happen.

It's all areas.

All right great thanks.

Thank you very much.

Your next question is from JoAnne Feeney of Midwest.

Your question please.

Yes, thanks a bit more on the Barcelona detail and what your hopes are.

Maybe you could help us identify the end market segments.

Whether it's DP servers, two-way servers or multi-way servers, where you think you're likely to have the most success with your future consumers and where you might see the best shipment growth, or where in the desktop and notebook segment you think you're going to get the best traction over the course of this year.

Hi JoAnne, Dirk here.

First on the server side, as you probably know, we've retained a pretty good position in the 4P space, even with the dual core products that we have on the strength of, I'll call it system architecture superiority, and introduction of quad core to the 4P product line, certainly helps us out there.

In addition, we have the opportunity to grow back some of the share that we lost in the 2P space.

Really across many segments in the server space, whether it's web serving, that is the outer tier, HPC, you name it.

Getting back on an even playing field certainly helps us and can give us an opportunity to grow share.

On the client side of the business, as you know we've got historic strength in consumer retail and refreshing the product line, you know at worst keeps us whole in an area of historic strength and gives us an opportunity to get a little bit richer mix on desktop.

Same statement with GPUs by the way, and then finally, the area where we really are underpenetrated is the commercial client market generally.

We think of that market in three broad buckets.

Government education, one, enterprise, being big business two, and SMB number 3.

The big opportunity for us is SMB, first because that's the biggest of those three segments, and it's the one where we're aligned with OEMs near term to penetrate.

Does that help?

Sure that does, but you did reference the big architectural difference between yourself and your competitor, and that's one difference, one big part of that difference, that may evaporate at the end of the year with their release of their next generation product.

So where do you think you might be able to still retain an edge despite that introduction and do you see the introduction of 45 nanometer base products as essential to your doing that?

Clearly we'll give our product line a good pop when we introduce the 45 nanometer quad core products, code name Shanghai and then we'll be introducing new platform architecture late 2009, early 2010.

And then finally, if I could just, how much of the B 2 version of Barcelona have you guys left in inventory?

I can't quote you a number, but the way I would think of it is this, we've been selling the B 2 quad core pretty successfully in desktop.

Despite B 3 being in the marketplace, have plans to continue to do that through all the channels we have.

We're not particularly worried about the B2 inventory position.

We flip manufacturing clearly to the B 3 in the first quarter.

So I'm comfortable with the B 2 inventory that we'll be able to move it at the appropriate speed, particularly in the client space.

So with your slow down a little bit of ramping FAS 36 and filling it out to full capacity, how much extra room do you have to increase your unit shipments if you were to increase your CapEx again?

How much extra output could you get?

To give you a framework, Fab 38 has the capability of about 20,000 starts per month and we're at zero.

So I mean, if you just forget about Fab 36.

Because Fab 36 really has all the equipment in place, it's just a utilization issue and transitioning to the appropriate technology node.

But Fab 38 is an asset that's sitting there with a little bit of equipment that will be built out at the appropriate time for unit growth.

What kind of timeframe, Bob, would be required to outfit that facility at this point?

You know, it's, it's the lead time for equipment is anywhere from 3 to 12 months.

It depends on the piece of equipment.

So you know, it's that kind of zone.

Clearly, we push and pull on that number all the time.

As you've seen, we can back off capital fairly quickly, we can ramp up capital pretty quickly.

But it does take a while to, I'll call it, if we needed that kind of capacity tomorrow, it takes a while to put in place.

And are you currently running Fab 36 flat out?

Are you 100% utilization?

No.

Okay.

So we have room to build more units in Fab 36 alone if we, you know, if we want to.

And the market wants.

Okay, thanks.

Matt, we'll take two more questions please.

Thank you, our next question is from Doug Freedman of Amtech Research.

Your question please?

A lot of good questions asked and answered.

If you could focus a little bit on the 45 nanometer products.

Congratulations on seeing samples already.

Have you been able to get a measure of how they're going to measure up, benchmark-wise and what your expectations are from a performance perspective?

Is that a, you're asking us to draw comparison between our 45 nanometer products and what we think the other guys--

Or even your own, if you could just benchmark.

What type of performance improvements do you expect to achieve with those products?

Oh, okay.

Yes, a couple dimensions.

One is clearly by going to 45 nanometers, we have an opportunity to put more function on the dye to the benefit of performance, something we do clearly in the server space.

That would drive architectural improvements.

Also by going to 45 nanometer we get improvement in transistor performance and power efficiency, which raises all both server and desktop.

In addition, in the 45 nanometer generation, we'll be doing dye variance with the interest of having products that are targeted to the appropriate cost points as they exist in the marketplace.

Does that help.

Yes, somewhat.

Can you also talk a little about where you stand on the development of the new core's, the bulldozer and bobcats that were talked about at the last technical analyst day.

The bulldozer core is in develop in 45 nanometer technology and we'll be sampling that in 2009.

All right great thank you.

Our final question today is from David Wong of Wachovia.

Your question please?

Thank you very much.

First just a clarification.

You said earlier about ASPs being flat.

You meant they were flat in each individual segment, right?

Is that what you said?

Yes that's correct.

Okay, great, the other thing is, can you quantify how much it will cost you in cash to get to break even?

Will you have significant cash restructuring charges?

What do you reckon your cash balance might jump to before you hit neutral cash flow?

Not ready to disclose that information.

We continue to work through it.

We've got many steps in the process that we're working our way through, but as I said before, we feel like with the current cash balance and the other opportunities we have, we're in fine shape to manage our way through even cash restructuring costs.

Okay, great.

And just one final one, in the December quarter you said you shipped about 400,000 quad core processors.

Can you give a number for March.

In excess of half a million.

Great, thanks very much.

Thank you.

Okay, that concludes the call, thank you.

Ladies and gentlemen, thank you for participating in today's conference.

This concludes the program.

You may now disconnect.

Good day.