超微半導體 (AMD) 2010 Q4 法說會逐字稿

Good afternoon, my name is Huey and I will be your conference operator for today.

At this time, I would like to welcome everyone to AMD's fourth quarter 2010 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, Vice President of Investor Relations for AMD.

Please go ahead.

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

Starting this quarter, we are providing written CFO commentary which will contain additional information regarding AMD's results and outlook and can be found in the IR section of AMD's website at quarterlyearnings.AMD.com.

Participants on today's conference call are Thomas Seifert, our Chief Financial Officer and Interim CEO; and Rick Bergman, Senior VP and General Manager, AMD's Product Group.

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

There will also be a telephone replay.

The number for the replay is 888-266-2016.

Outside of the United States, the number is 703-925-2533.

The access code for both is 150-2479.

The telephone replay will be available for the next 10 days, starting later this evening.

I would like to highlight a few dates for you this afternoon.

Thomas will present at the Goldman Sachs Technology and Internet Conference on the 16th of February in San Francisco, and our first-quarter quiet time will begin at the close of business on Friday, March 18.

On December 27, AMD announced that, starting with the first fiscal quarter of 2011, the Company will begin accounting for its investment in GLOBALFOUNDRIES under the cost method of accounting and will no longer recognize any share of GLOBALFOUNDRIES' net income or loss in its statements of operation.

The transition to cost-based accounting was triggered by the contribution of Chartered Semiconductor to GLOBALFOUNDRIES and amendments to certain agreements.

As a result of the contribution, AMD's ownership of the newly combined entity on a fully-diluted basis is approximately 14%.

Reconciliation for all non-GAAP financial measures discussed on today's call is included in our financial tables that accompany our earnings release, available in the investor relations section of AMD.com.

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

Investors are cautioned that 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, especially in light of the current state of the economy.

We encourage you to review our filings with the SEC where we discuss the risk factors that could cause actual results to differ materially from our expectations.

You will find detailed discussions about such risk factors in our most recent SEC filing, AMD's quarterly report on Form 10-Q for the quarter ended September 25, 2010.

Now, with that, I'd like to hand the call over to Thomas.

Thank you, Ruth.

Before we begin, I would like to take a moment to thank Dirk Meyer for his leadership as AMD's CEO over the past 2.5 years.

Indeed, he leaves behind a much stronger Company than the one he inherited, a much nimbler AMD with the people, the IP and the spirit to fully realize the breadth of opportunities in front of us.

As you know, AMD announced last week that our Board had formed a CEO search committee led by Bruce Claflin, Executive Chairman of AMD's Board of Directors.

The Board has retained an executive search firm to assist with this process.

The search is obviously a priority, and the committee is moving the process forward to ensure that we select a person with the right vision, experience and track record to lead AMD into the future and to create increased shareholder value over time.

While we don't plan on communicating further until the search process is concluded, we will update you, should events warrant.

That being said, we are here to focus on our fourth quarter and full-year earnings results.

2010 was an important year for AMD.

It was a year in which we achieved many of our major milestones, resulting in a Company with solid momentum and well-positioned for the opportunities immediately ahead.

First, we demonstrated that our fabless business model works, restructuring our balance sheet and reducing our overall debt by $400 million, excluding GLOBALFOUNDRIES; improving our 2010 non-GAAP gross margin by 9 percentage points over the prior year, and generating $553 million in non-GAAP operating income and $355 million in adjusted free cash flow in 2010.

Second, we showed our execution engine is on track, delivering Bulldozer, our impressive new x86 core, designed to bring a new level of performance and performance-per-watt capability across the full spectrum of clients and servers; taking a clear leadership position in discrete graphics, having shipped over 35 million DX11-enabled GPUs to date; and introducing the first of our AMD Fusion family, which for the first time combines our expertise in x86 computing and graphics into a single new architecture, arguably the most significant advancement in processor architecture in decades.

And, third, we proved that we have indeed changed the game.

We made graphics matter, irreversibly shifting the focus of the industry to a more balanced combination of CPUs and increasingly robust graphics capability.

And, we introduced a new category, the Accelerated Processing Unit, or APU, changing the trajectory of processor design and development from here forward.

Focusing more specifically on the fourth quarter, industry momentum for Fusion is strong and growing.

OEM adoption of Brazos is excellent.

We've shipped more than 1 million Brazos platforms in its debut quarter to world-class OEMs, including Acer, ASUS, Dell, HP, Lenovo, MSI, Samsung, Sony and Toshiba.

Brazos' technical performance is superb, offering a unique combination of full 1080p HD video and all-day battery life.

At CES, Brazos-based notebooks received several significant innovation awards, including Laptop Magazine's Editor's Choice Award.

Our AMD Fusion software ecosystem is maturing rapidly with key partners, such as Adobe, ArcSoft, Corel, CyberLink, DivX and Microsoft announcing applications optimized for AMD Fusion APUs.

And finally, customers are discovering that Brazos is ideal for more than notebook platforms, earning design wins in everything from tablets for Internet-ready set-top boxes, [SIM] clients and point-of-sale kiosks.

On the technology side, we have entered a new phase with our 32-nanometer ramp and are now sampling thousands of nano products to a wide variety of OEMs and ODMs as they prepare for production in Q2.

We have begun sampling our 32-nanometer Bulldozer-based Orochi parts in volume with customers worldwide.

We expect Orochi for desktops to ship in production in early summer and Orochi for servers in late summer.

Turning to the fourth-quarter financial summary, fourth-quarter revenue was $1.65 billion, up 2% compared to the third quarter of 2010.

We reported non-GAAP net income of $106 million and a non-GAAP diluted EPS of $0.14.

Fourth-quarter non-GAAP operating income was $141 million.

Fourth-quarter gross margin was 45%, down 1 percentage point from the prior quarter at the high end, however, of our target model for the year of 40% to 45%.

Operating expenses continue to hit within our target model.

R&D was $352 million, and SG&A was $250 million for the quarter.

Total operating expenses came in at $602 million, slightly less than the guided $610 million.

Fourth-quarter adjusted EBITDA was $241 million, down $4 million sequentially, and non-GAAP adjusted free cash flow was $11 million, down $80 million from the prior quarter.

Now switching to the business segments, in our Computing Solutions segment, fourth-quarter revenue was $1.22 billion, flat sequentially, and operating income was $91 million.

In the Graphics segment revenue for the quarter was $424 million.

The sequential growth of 9% was mainly due to, first, double-digit growth unit sales to the AIB channel, due to the success of our second-generation DX11-enabled GPUs, the AMD Radeon HD 6800 and 6900 series, as well as seasonally higher game console revenue.

Operating income for the Graphics segment was $68 million.

Turning our attention to the outlook, the following statements concerning AMD are forward-looking, and actual results could differ materially from current expectations.

For the first quarter of 2011, AMD expects revenue to be flat to slightly down sequentially.

We expect operating expenses to be approximately $650 million, due to an extra week in the first quarter and a separation payment of about $12 million to Dirk Meyer.

[DAC] tax is expected to be approximately $4 million.

In my first days in my new role, I have never been more confident in this Company and our capacity to succeed.

We have world-class people with a propensity for solving the world's most difficult technical challenges and a passion to see the next cycle of innovation come to fruition.

I really want to thank them for their commitment and achievements over the past year.

We have unparalleled assets, starting with the strongest combination of x86 and graphics technology in the world, a business model now much more attuned to embrace industry shifts and a loyal and expanding group of customers and partners all looking for AMD to succeed.

And we have solid gross margin expansion opportunities.

We are just beginning to launch some of the most exciting products into the sweet spots of our portfolio.

Our products are aimed to some of the largest, most established margin pools in the industry, and we have lots of headroom in which to grow.

My priorities and those of the Company are clear.

We must stay the course of execution in delivering what we promised.

We will, however, increase the pace of converting our significant potential into shareholder value, and we will embrace the changes in the market where our prospects for success look good.

In summary, we will continue to both execute our leadership strategy and generate increasing momentum for our customers, our shareholders and ourselves.

At this point I would like to turn it back to Ruth.

Huey, we are very happy to poll the participants for the question-and-answer session now, please.

(Operator instructions) Romit Shah, Nomura Securities.

I wanted to follow up on the guidance.

You're guiding revenues flat to down for Q1, but you've got an extra week.

How much do you think that benefits you this quarter?

And then I have a follow-up.

Yes, good question.

We guided flat to slightly down, so certainly better than seasonal.

If I had to paint a box around it, it's probably around zero to minus 4%.

So it's certainly a sub-seasonal quarter that we expect in terms of demand.

I'm sorry; I'm not following.

So you are guiding flat to down 4%.

Are you getting any sort of benefit from the extra week in revenue?

Well, it's a mixture, of course, of an extra week of revenue.

But we are also seeing better than seasonal demand.

Okay, I got it.

And then could you just give us an update on the timing of Llano?

I didn't see that mentioned in your CFO commentary.

The shipment dates for Llano have not changed.

We are sampling, as I said, in high-volume now and getting our customers ready to ship products in the second quarter.

All right, terrific, thank you.

Tim Luke, Barclays Capital.

Thomas, as you look forward, given the change in the leadership, what do you think some of the new points of emphasis are likely to be as you move forward, to the extent that you may be able to just recap what you think some of the differences in terms of emphasis may be going forward?

Well, for the near-term, I think you shouldn't expect too much of a difference.

I think we entered this year with tremendous momentum coming out of CES and seeing the excitement for their first Fusion products, bringing really compute and graphics performance to a form factor that had not seen that before.

And our customers are excited by that, and they are excited by the battery life that goes along with it.

We have a terrific roadmap this year ahead of us; I mentioned it.

We're looking forward to ship Llano products and Orochi products in the second half.

And this really focuses the organization pretty much.

There will be opportunities that are incremental to that that we will have to look at.

But for the near-term, it's really making sure that the focus stays on execution, that we accelerate the pace with which we look at some of the opportunities, especially when it comes to margin expansion, and then also consider that the changes that we have been talking about over the last year that we have enabled in this new AMD business model really work to our strength.

We are now an IP generating company.

We will focus the Company where the strength always was, defining and innovating great products and bringing them to the markets in an efficient manner.

That will be the near-term priority.

And then we will be able to, based on that, think incrementally on where other opportunities are that make us successful.

If I may, Thomas, in guiding to the $650 million of OpEx, even with the payment to Dirk and the extra week, it looks like a fairly significant increase.

Can you frame for us how we should think about the OpEx going forward for the year, in terms of the shape of the OpEx?

Is it going to be -- how will it trend sequentially is what I'm trying to get a feel for.

And separately, given that you are guiding for a fairly flattish revenue outlook, should we assume a fairly flattish gross margin, or are there other puts and takes for the first quarter?

Thanks.

Very good questions.

So you really should look at operating expense guidance for the first quarter really in a flattish way.

If you take out the additional week and correct for the separate payment and keep in mind that our guidance for the fourth quarter last year was around $610 million, it's -- OpEx development in the first quarter is rather flattish.

I think we have shown in the past that we manage the Company in a very disciplined way when it comes to operating expenses, and we have no intent to change that.

The gross margin question is a good question.

We see in the current quarter some ups and downs.

Of course, we will see gross margin opportunity just because of product mix and Fusion launches.

However, we also will see some headwinds because of the significant ramp of 32-nanometer capacity.

The ups and downs probably equal each other out, so I would assume around a flattish gross margin development in the first quarter.

Thanks so much, guys.

Ambrish Srivastava, Bank of Montreal.

Just two questions -- number one, what is the assumption for PC growth for 2011?

Your small rival from across town is expecting low to mid teens, if I remember correctly.

And the second question is on the GPU side.

Last quarter, you guys had talked about meaningful share losses to NVIDIA.

This time around, is it just market growth, or it shouldn't appear that share losses should abate in one quarter?

So just some more perspective on that, please.

Thanks.

Good question.

So, I think, with respect to PC growth, an expectation that the market is growing between 10% and 11% is probably the right range.

We were excited by the response of our new product launch in the graphic segment.

We launched two high-and products that certainly caused excitement and revenue growth and that were driving the performance of the Company.

Probably, Rick, you could go into more detail here.

Yes; I don't recall us talking about share losses in the GPU market.

As we said, we're the leaders in the DX11 category, and we just launched an entirely new second generation, both on the desktop and notebook side.

As we have, obviously, or had 62% share in the third quarter, that gets tough in that particular market just to maintain that level.

But certainly, we had robust design wins on all the new platforms in 2011.

So we expect our GPU to continue to be successful going forward.

Okay, thank you.

Jim Covello, Goldman Sachs.

I guess maybe a couple of big-picture questions -- first, recognizing that AMD doesn't have its own manufacturing facilities anymore, what do you think the real impact of Intel's very significant CapEx budget is going to be on the industry and the competitive dynamic?

Very good question.

So I think they announced slightly above $8 billion for this year.

If you look at the ecosystem that supports us, GLOBALFOUNDRIES just announced a investment of more than $5 billion this year, and our second large provider of manufacturing capacity, TSMC, gave guidance of around $6 billion.

So in terms of manufacturing infrastructure and scale, we are supported by a really substantial ecosystem ourselves, and that makes us pretty confident moving forward.

And then I think we discussed those issues at length.

We are moving into an environment where people do not buy processor frequency anymore but look at what capability the products deliver.

And I think we have demonstrated now with our launch of the Brazos platform at CES what kind of experience we can deliver in this form factor.

And we are really looking forward to the Llano launch in summer to put things into perspective.

That's very helpful, and if I could ask as my follow-up, maybe relative to your guidance for the first quarter or just more generally, what kind of tablet cannibalization assumptions, if any, are you incorporating into that guidance as we have a little more visibility on the number of tablets that are shipping in any given quarter?

Do you think that's meaningfully impacting the PC space at this point, or is most of that tablet growth incremental, in your view?

Thank you.

Obviously, there's a lot of opinions around that topic, especially in light of some of the announcements made this week.

As we talk with our OEM partners, we don't see a deterioration in the market in a major way in the notebook area.

And any cannibalization is built into our estimates that Thomas just provided.

Thank you very much.

Chris Danely, JP Morgan.

My first question -- so we're seeing a lot of the APU-enabled notebooks coming out.

Can you just maybe give us a sense of the price point?

Is this more of a netbook type of product, a mainstream notebook, a high-end notebook?

Just a little more color there?

Absolutely.

So, yes, if you looked at the various announcements, it's all of the above and then some -- all of their desktops and then all-in-one form factors, as well as today we had an embedded Brazos announcement as well.

So everybody gets the value of what Fusion brings to virtually every single computing platform out there in the industry.

And then, certainly, as we bring Llano into play later this year, you'll see us move into even richer and higher-priced performance notebook and desktop platforms as well.

Great, and as my follow-up, you guys sound pretty fired up.

It sounds like business is pretty good, turning a tidy profit.

I guess, so why is Dirk not there?

Is it -- you guys thought he should capitalize on tablets more?

Do you feel like your gross margin should be at 50% and growing a lot faster?

Can you just maybe shed a little light on why he's no longer there, what he was missing?

I'm not going to go into detail, too much detail here.

We discussed this last week, but this was not a looking-backward-based decision.

I think they're the shape we are in today, the momentum we have generated we feel good about.

It was very much a forward-looking statement from the Board, and I'm not going to provide any more color on that than what we said last week.

Shawn Webster, Macquarie.

So you mentioned a couple of different things in your commentary as well as your press release.

I was wondering if you could share with us what your processor units did sequentially, as well as your graphics chip units.

On the graphics side, they were up sequentially.

On the CPU side, they were flattish.

Okay, thank you.

And for the pricing environment, do you have expectations as we go into the next quarter or two based on assumptions on mix or what's happening within AMD notebook and desktop and server segments?

Yes.

So we always said that we expect the pricing environment to be rather flattish.

We will see some opportunities based on product mix and demand, yes.

And then, are you experiencing, given the success and some of the design wins recently -- or, how is the supply situation?

Are you experiencing any tightness?

How are lead times right now?

From a supply side, we are really in good shape.

So all the shortages we had during the first half of 2010 have disappeared.

We don't see any shortages at this point in time.

And then maybe a couple of quick accounting-related ones -- so with GLOBALFOUNDRIES coming off, the whole equity impact line item goes away, and then something arises on the balance sheet?

Is that how the mechanics will work as we go into Q1?

Yes.

So, as part of the accounting change, we are just in the process of a valuation analysis that will be completed during the course of this quarter.

This will have an impact on our equity stake, the value of our equity stake in GLOBALFOUNDRIES, and this will be it.

Of course, you will look at this equity from a fair value perspective on a yearly basis and do testing.

But beyond that, you will not see any further impact from future GLOBALFOUNDRIES losses or profits on our balance -- neither on our balance sheet nor on our P&L.

And how does the change in share ownership affect your diluted share count?

It's at 14%.

The value of the 14% might change, but the 14% for the quarter as a 14%.

And then what was the legal settlement good news you saw?

And that will be my last question.

We settled with Amazon.

Okay, thank you very much.

I would like to interject just a slight correction on a statement offered earlier.

Our GPU shipments went down slightly in Q4.

Glen Yeung, Citi.

Thank you very much.

I looked at that Laptop Magazine review that you referenced earlier, Thomas.

It sounds pretty good.

I guess the question is, are the initial 1 million shipments of Fusion predominantly aimed at netbook, one?

And then, two, it seems you had no market share there before.

Do you feel like you are already gaining share with Fusion at this point?

Yes, very good question.

So the shipments were not only in their netbook segment, but also beyond, in notebook all-in-one form factors.

And, of course, we are excited by bringing such a kind of performance into a segment of the market where we had no revenue before.

So any shipment in there is going to be market share accretive.

With the response we have seen, we are quite bullish with our expectations for this year and the traction we have seen so far.

Just also, I think, clarification -- as the netbook and small notebook category continues to get more and more blurred, and really, that's -- we were targeting the ultra-thin and light type of form factors with our Ontario solution.

And in fact, the HP dm1 you referenced technically is a small form factor notebook because it's about [11.6] inches.

Interesting, okay, and then maybe thinking about the same question in a different way -- as you think about the shape of the year, is there a time when the share gains become more evident?

Because it's not necessarily so in Q1, right?

Your guidance and Intel's were largely the same.

So as we think about beyond that, is there a quarter in which you think or a time frame in which you think the share gains really start to show up in the numbers?

We will have, just based on the shipments and the launch dates, obviously, a bias towards the second half of the year.

And can I just ask one other quick question, which is you're going to change at the end of this quarter your wafer pricing agreement with GLOBALFOUNDRIES.

Can you talk about how we should think about the impact of that on gross margins as an independent event, when that happens after this quarter?

Yes, good question.

So we always said that moving forward, our relationship becomes more foundry-like.

The impact that this will have are, of course, were part of the guidance we gave at our analyst day in November of last year.

So moving forward, we will have some positive support on margin development out of a mix of leverages, including higher productivity, of course, of the 32-nanometer node and a lesser degree of idle capacity in GLOBALFOUNDRIES increase and so on.

Thomas, just to remind us what that --- of the guidance was you gave last November, gross margin guidance?

We guided a range of 44% to 48% for the year, up from 40% to 45% for 2010.

John Pitzer, Credit Suisse.

Congratulations, thanks for letting me ask the question.

I guess my first question, on flat computing revenue, operating income in that division was down about $73 million sequentially.

Hoping you can help me understand why the big drop in operating income.

Is this a one-quarter phenomenon?

Is it more the desktop/notebook market, or is this a server phenomenon?

Just help me get a sense of what's going on there.

Yes, a good question -- so it was a mix of things.

We saw some price deterioration in the quarter because it was a very consumer-driven quarter in terms of demand.

We also manage, I hope you saw that our inventory in a very good way.

But that also means that -- meant that we had a higher degree of underutilization in the factory increase and that we have, still, an obligation to pick that up.

So those two effects pretty much explain the impact on operating income.

And then, I guess, conversely, when you look at the graphics business, it was a really nice jump in operating profits.

If I'm correct, fourth quarter is usually seasonally strong on the gaming side.

How do we think about operating profits in that business as you move into the first half of 2011?

Well, we have ambitious targets when it comes to profitability, and they are also true for the graphics segment.

We have put some heightened emphasis on profitability, so we are hopeful to keep the performance at that level.

And then, Thomas, one quick last one -- did you give gross margin guidance for the first quarter?

And if not, is there a range that we should be thinking about?

Yes.

I said -- just on one question earlier, I talked about flattish gross margin development for the Company in Q1.

Perfect, thank you, I appreciate it.

Uche Orji, UBS.

Thomas, let me just start off by asking you about servers.

One of the areas where we have seen AMD, especially given the results just reported, you had weak server ASPs.

And what I found, that if I look at Intel's numbers, servers was probably one of the strongest that they had.

So question here is, what are you doing to start to regain traction, especially as you now start to launch new processor architectures?

You see anything (inaudible) standpoint to make sure that you will be able to get more traction within this market?

That was the first question.

And also, if you can talk about what you see as underlying growth expectations for server through 2011, that would be helpful.

Yes.

I'm not going to make a secret out of it that we were disappointed with our performance in this segment in the fourth quarter.

This is one of the areas where we see significant room for improvement, and that's one of the areas I would like to refer to when we talk about picking up the pace.

We think we have a good product portfolio in place, but we have to work on our go-to-market strategies, and this will be one of the emphases moving forward.

Okay, just one question, on the GPU side.

The strength we've seen in GPU -- I apologize if you've answered this earlier -- but on the strength we've seen in GPU, what is your sense of attach rates in the Sandy Bridge platform?

Because one of the big questions obviously how attach rate for graphics will fare as we see more APU type products through 2011.

So we've seen some strong numbers this quarter, which probably suggests (inaudible) [in either] market share gain or good attach rate.

Any commentary as to how you see the rest of the year playing out would be helpful.

Rick, do you want to answer that?

Yes, certainly, so we are thrilled about the increased attention towards the GPU and video capabilities of PCs because at the end of the day AMD wins, whether it's a Fusion processor or a discrete GPU.

Now, saying that, what we've seen on attach rates is they are basically the same as they've been in 2010, so no fundamental difference on the new processor platforms that have been announced or will be announced in 2011.

Okay, and then lastly, for you, Thomas, following on from Glen's questions on the change in wafer pricing model, as you ramp this new -- this ramp to 32 nanometers, what is the focus?

Is it market share gain or gross margin optimization?

Can you do both, and does this new pricing model allow you to do both?

Profitability first.

I made no secret of this over the last five to six quarters.

Gross margin expansion potential is the big lever for us.

However, in that case, in that instance, both things come together because a strong expansion of our Llano ramp will allow us to grow into a market segment and product SKUs that allow us to command a higher-price performance.

So I think this is one of the two levers where both things come together, where we can combine market share gain and gross margin expansion at the same time.

Srini Pajjuri, CLSA Securities.

I just wanted to get some clarity on the ASP declines last quarter in processors.

I'm just wondering what caused the decline and wondering if there was -- if you thought -- if there was some excess capacity in the channel.

No, that's not how I would portray it.

It was really more a product mix topic than a demand pressure or oversupply or under demand picture.

And going forward, you said you expect the PC market to grow 10%, plus or minus.

I'm wondering what's your expectation for pricing for 2011 is?

No doubt, it's going to be a competitive environment, but we always said that we think that we can compensate price erosion with an improvement in price performance on our side by just growing and diversifying into product SKUs that we have not touched or have not served yet.

And then one longer-term question -- there was some media speculation about why Dirk left.

Some newspapers were talking about the tablet strategy as the main issue.

I'm just wondering, hypothetically, if you were to enter the tablet market, do you think you can sustain the long-term model that you gave us, or do you think these investments will have to go up?

Thank you.

Well, I'm not going to comment on any speculations that are out there.

I think what we can say, however, is just looking at the product roadmap and what we have been delivering with Brazos shows us that if we continue to develop product with ever-lower power consumption while at the same time delivering really superior graphics and processing performance, that we can address applications that are outside of market segments that we currently serve.

And we will entertain that.

To me, tablets present a wonderful opportunity for AMD.

I've been in the PC industry 20-plus years.

We've really struggled to get into the living room, and it's clear that tablets are finding their way into the living room, a real consumer experience.

And as consumers start to utilize these tablets, they start to demand a better end user experience, which invariably means processing power, incredible graphics, incredible video.

And they will move up in size, higher resolutions and so on.

And already, we are seeing a number of design win opportunities for us with Brazos today.

And certainly, as we develop new products in that category, we will account for those new trends and the new market opportunities.

Doug Freedman, Gleacher & Company.

Thomas, if I could start off, the marketing accounting, I believe about two quarters ago, you changed the way in which you're accounting for the marketing spend.

Can you highlight us on how we should think about that impacting the forward accounting on the SG&A line?

Yes, very good question -- so we said we had a hike.

It's not going -- the reduction is not going to be a black-and-white event.

So we will see some reduction in the first quarter, and then more relief moving forward.

So on a like-for-like basis, we should think that we could get back to a September 10 number, or is it that we can get --?

In terms of expense to revenue, that is certainly the target.

Okay, and then, Rick, for you, if we can look at the GPU market a little bit closer detail, where do you think we are?

You definitely saw a nice uptick in ASPs with the new launch of the high-end products.

How far along in that -- where do you think ASP's go over the next couple of quarters?

And then could you offer us some commentary on what you're seeing for ASP trends in the notebook side of the business?

So, to address both of those questions, we obviously introduced our high-end products towards the end of 2010, specifically the 6900 series.

And we have a couple more introductions planned shortly in that category.

That tends to push our ASPs northwards.

As our new notebook products are introduced and our shipments grow, obviously that's the other direction, but no different trends between 2011 and 2010 on an annual basis there.

And the second half of the question was -- remind me again?

Notebook GPU trends, if you're seeing any sort of price pressure in that market as your other competitor out there has been trying to take back some share and been pretty vocal about their design win success.

I've been in the GPU business for a long time, and there is always a tough competitive market.

And we'll make sure that we're successful there, as Thomas pointed out, and we'll continue to profitably grow that business.

I don't think anybody is better positioned than we are in the GPU market.

We obviously have our Fusion processors, and you know, the discrete GPUs actually complement our Fusion processors nicely, whether it's on our own platform or those customers that buy the other guys' platforms, for whatever reason want that same graphics performance.

They invariably will look towards AMD GPU solutions.

Great, and if I could sneak one more in for you, Thomas, if I look at the list of customers that you commented or have adopted and launched Brazos platform products, is there a possibility that customer list continues to expand?

What are your thoughts on customer acquisition plans?

Very aggressive, and of course the momentum that we have generated with the launch is something that we continue to move forward.

It's exciting performance with outstanding battery life at that form factor, and we will use this momentum to grow customer base and market share.

Terrific, thank you.

Patrick Wang, Wedbush Securities.

Can you guys maybe characterize how you see your Fusion ramp?

I guess if I look at this, you guys shipped 1.3 million platforms in just the last two months of last quarter.

How should we think about that ramp through the next couple months?

And then I guess separately, maybe for Rick, can you talk about your expectations of how Llano is going to competitively stack up against Intel's mainstream Sandy Bridge product lineup; I guess maybe what drives those anticipated share gains?

Let me take the first part and then let Rick answer the second part.

We are not going to provide any market share projections at this point in time.

However, I think you can read and hear the excitement we feel for that product and the momentum we have generated.

So we feel confident to gain significant market share in this segment with this platform.

And this ultimately will be reflected in the shipment numbers and in the ramp numbers.

With regards to the competitive platform, we were pleasantly surprised at CES.

Prior to CES, there were claims of discrete-level graphics performance and that type of capability.

Obviously, as the details were unrolled and real benchmarks were run on real applications, it fell well short of what we would offer in discrete graphics capabilities.

As we look forward with Llano, we are really excited because our value proposition will really shine through.

We'll show the world what GPU performance and capabilities mean with Llano, and it will be much higher performance than what you're seeing out there for our competition in that area.

So it's still more of a -- it's more of highlighting your graphics advantage there in terms of performance?

Well, that's what we've said all along.

And Thomas, as you heard earlier in the conference call, the market is telling us and even our competitor was stating how important graphics and video is now for consumers.

That's really where all of us consumers care about, is that video or graphics display.

So we are not wavering from that message, that that is -- when you buy a new notebook or desktop, that should be top priority on your list, your experience.

Got you, okay, and then just a longer-term strategic question -- I'm curious if there's been a change to the company's stance on ARM.

There's been a lot of momentum out there for some of your competitors out there.

And I know you guys have had an ARM business in the past and have sold it.

Just curious how you guys are thinking about that today.

First of all, we have yet to realize that there -- the expertise and the IP that we have in the Company on x86 and GPU processors is broad.

There are only few companies out there in the world that have processor design capabilities at our level, and those capabilities can also work on other platforms.

However, I think it's important to keep in mind where our core opportunities are for the moment.

We will embrace any changes that are happening in our ecosystem, and I think with the changes the Company has gone through, transforming us in the business model we have now, I think we are really set up to cope and embrace the opportunities and possibilities that this could mean.

Okay, thanks so much, good luck.

Operator, we're happy to take questions from two more participants, please.

David Wong, Wells Fargo.

Thank you very much, could you give us some idea of your sequential growth in server-related revenues?

So for the current year, you mean?

For the December quarter, and what you expect in the March quarter.

So for the December quarter, we will be slightly down.

For this quarter, we have higher ambitions.

Great, and when you ramp your 32-nanometer products in the second half of this year, will they have -- are you reckoning they will have a higher gross margin, a comparable gross margin or a lower gross margin than the 45-nanometer products they will supersede?

That depends upon which -- when you look at it.

In the early beginning of the ramp, you have ramp costs that will impact your profitability, but we've never made a secret out of our goal and the opportunity this technology offers.

And in the end this will be highly gross margin accretive.

To be clear, I think the question was stated -- ramping in the second half of the year.

We have begun that production ramp now, and obviously, it picks up through the course of the year, but we are starting now.

But does your -- your gross margin guidance for the year assumes that as you ship 32-nanometer product in the second half of the year, that could have a somewhat lower gross margin, at least initially.

Is that correct?

Well, we gave guidance for this year for -- in the range of 44% to 48%.

And this guidance includes that with the ramp of a newer technology, you have certain ramp-up costs.

But the guidance we gave is inclusive of those costs.

Yes, thank you very much.

Stacy Rasgon, Sanford Bernstein.

Two questions for you -- the first one, now that you're shipping Brazos in a little more volume, can you give us a little more color on the ASP and margin profile of those products?

Can you give us some -- maybe I'll just stop it there for this one.

Well, you know that we never provide gross margin profiles on a product base (multiple speakers) --.

I mean, can you give us some feeling just sort of relative to corporate averages?

Is it above, is it below, is it in line?

So we always said that the launch of the Fusion product, both on the Brazos, as well as on the Llano level, are going to be margin accretive to the overall model.

So I think it's fair to assume that the product is going to be above the corporate average.

Got it, that's great.

And for one more question, I know you don't want to give any more color behind Dirk's dismissal, but in terms of the reasoning behind it, which has been reported to be around the long-term strategic vision around tablets and the mobile connected devices, why is developing a focus on that space today as important for you as -- when arguably -- I could make the argument that you can continue to seek out the incremental growth opportunities in your core market.

Your products from a power standpoint right now probably aren't ready for the tablet space.

There are a lot of other competitors there, the margins might not be as attractive, and overall, the opportunity is probably smaller.

And frankly, I'm glad to hear that your -- the Llano looks like it's on the way.

But you're not done on executing what's in front of you right now.

Why is right now the time to shift the focus to more of these long-term strategies, rather than really trying to redouble the focus on the x86 opportunity, which is in front of you today?

So, very good question, let me start with the second part first and only slightly comment on your first part.

There is no deviation from the near-term priorities within the Company.

The focus on execution and delivering the promises and the guidance we gave is the top priority for the Company and my top priority.

So let there be no doubt.

The question on the future outlook is shortened and what was reported.

I think the discussion was more than just a tablet strategy.

The mobility discussion, as well, a client is also -- as well, an infrastructure question.

And it was also a topic that you heard from the press that we talked about picking up the pace for the Company and addressing some of the near-term opportunities that we have to improve our profitability in a more aggressive manner.

So to reduce it to a just-tablet statement would be wrong and was certainly not the case.

And it's certainly not an indication that we are going to let the focus shift away from what the priorities are in terms of delivering what we promised.

Got it, thank you guys.

We would like to thank everybody for participating in today's call, and we look forward to seeing you at the Goldman Sachs Conference in February.

Thank you.

Thank you.

Ladies and gentlemen, this does conclude today's conference.

Thank you for your participation and have a wonderful day.

Attendees, you may now disconnect.