Advanced Micro Devices Inc (AMD)

[rupert]

C O R P O R A T E P A R T I C I P A N T S
Mike Hasay
Advanced Micro Devices - Director of Investor Relations
Hector De Ruiz
Advanced Micro Devices - President, CEO, Director
Robert Rivet
Advanced Micro Devices - CFO, Sr. V.P.
Henri Richard
Advanced Micro Devices - Sr. V.P. Of Worldwid Sales & Marketing

C O N F E R E N C E C A L L P A R T I C I P A N T S
Michael Matibia (ph)
CSFB - Analyst
Andrew Root (ph)
Goldman-Sachs - Analyst
Thomas Thornhill
UBS - Analyst
Michael Mcconnell
Pacific Crest Securities - Analyst
Joseph Osha
Merrill Lynch - Analyst
Quinn Bolton (ph)
Oppenheimer & Company - Anlayst
Chris Donnelly (ph)
J.P. Morgan - Analyst
Eric Rothdeutsch
Friedman, Billings, Ramsey - Analyst
Dan Scovel
Needham & Company, Inc. - Analyst
Adam Parker
Sanford C. Bernstein & Company, Inc. - Analyst
Hans Mosesmann
Soundview Technology Corp. - Analyst
Mark Edelstone
Morgan Stanley - Analyst
Clark Westmont (ph)
Smith-Barney - Analyst
David Wong (ph)
A.G. Edwards - Analyst
Hayden Ugan (ph)
Susquehanna Financial Group - Analyst
John Barton
Wachovia Securities - Analyst


P R E S E N T A T I O N
Operator
Ladies and gentlemen, thank you for standing by, and welcome
to the AMD fourth quarter earnings announcement. During
the presentation, all participants will be in a listen-only mode.
Afterwards, we will conduct a question-and-answer session. At
that time, if you have a question, please press the 1 followed by
the 4 on your telephone. As a reminder this conference call is
being recorded Tuesday, January 20, 2004. I would now like
to turn the conference call over to Mr. Mike Hasay, Director
of Investor Relations. Please proceed sir.

Mike Hasay - Advanced Micro Devices - Director of Investor
Relations
Thank you very much. The format of the call today will include
prepared comments followed by Q and A. The participants are
Hector Ruiz, our President and CEO, Bob Rivet, our CFO,
and Henri Richard our SVP of world-wide sales and marketing.
This call is a live broadcast and will be replayed at AMD.com
and StreetEvents.com the telephone number is 800 633-8284.
Outside of the United States, the number is 402-977-9140. The
access code for both is 21180211. The telephone replay will be
available for the next ten days starting at 6:00 p.m. pacific time tonight.

Before we begin the call I would like to caution everyone that
we will be making forward-looking statements about
management's goals, plans, and expectations. As you know, the
semiconductor industry is generally volatile. Our product and
process technology development project and our manufacturing
processes are complex. Current worldwide economic and
industry conditions make it especially difficult to forecast product demand at this time. Because our actual results may differ materially from our plans and expectations today, I encourage you to review our filings with the SEC where we discuss in detail our risk factors and our business. You will find detailed discussions in our most recent SEC filings including the annual report on Form 10-K and our third quarter Form 10-Q. With that, I would now like to introduce Hector De Ruiz, AMD's president and CEO.

Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director
Thank you Mike. And thank you everyone for joining us today.
One year ago at this time, we were focused on some very
fundamental changes in our operating model, changes which
AMD - Q4 2003 Advanced Micro Devices Earnings Conference Call
adjusted would position us for sustainable prosperity. I'm very
pleased to report that this past quarter it's proved that we can
deliver on the promise of prosperity. And it is my full intent,
along with all the members of the AMD management team and
everyone of 14,000 plus employees, to deliver on the sustainable
part of promise as we go forward from here. I hope that you're
beginning to see a pattern of delivering on our promises to our
customers, to ourselves, and to our shareholders. We take that
very seriously here and believe this past quarter is yet another
in a series of quarters where we did everything we said we would
do.

Last quarter I introduced three characteristics that define what
I called then, the new AMD. The winning strategy of
customer-centric innovation, we're becoming a strategic enabler
to our customers by focusing on what is most important to their
success, continued world-class design and manufacturing
performance, and a strong discipline of operational flexibility.
The recent quarter is the continuation of our progress in success
in each of these three areas. Our customer centric innovation
strategy continues to bear fruit resulting in ever strengthening
customer relationships and as a result solid top line growth in
each of our core businesses. In our microprocessor business, we
generated strong profits on solid execution and across our brands
and geographies. We are very pleased with the continued
strength of our AMD Athlon XP brand. It is truly the workhorse
brand in our processor business and it continues to enjoy a strong success in each of our customers product segments.
Meanwhile, our AMD Athlon 64 product family continues to
gain momentum, especially with our top tier 1 customers. In
the past quarter alone best of systems, based on the AMD Athlon
64 processor, became available from a variety of customers,
including H-P, Fujitsu Siemens, Fujitsu Packard-Bell, and
E-machines. Our AMD Athlon 64 FX product continued to
gain share with a sophisticated gaming audience for which it
was targeted. We were honored that the Athlon 64 FX processor
earned the reader's choice award from Tom's Hardware guide
for best innovation in CPUs for 2003. Finally, our AMD
Opteron family continues to make strong inroads with both top
tier customers and their most important commercial accounts.
For example, Fujitsu Siemens computers announced its sell to
V 810 work station, the first dual-processor work station based
on AMD Opteron processor 200 series. In addition, in
November we were thrilled to announce a comprehensive
strategic alliance with Sun microsystems. Sun is already shipping
blade products based on our AMD Athlon XP mobile 1800 plus
processor, and they are on track to ship two and four-way servers
based on AMD Opteron in the first half of this year. Beyond
this, Sun's solaris franchise and portfolio of enterprise software relationships bring additional momentum to the AMD Opteron success story. Our strong progress in the trade and the
commercial sector continued, with important customer wins
such as Daimler-Chrysler, Qualcomm, Perelli, and Bristol-Myers,
Squibb, and others. We saw healthy sales growth in every
geography, including record sales in Latin America and China.
And in summary, our ASP trajectory continued upward, a
reflection of a strong brand discipline and solid execution.
In its second quarter of existence, our expansion flash memory
brand has extended its marketshare leadership in NOR Flash
memory. Overall, AMD flash sales continue to grow faster than
the NOR market in both the embedded and wireless segments.
And customer demand for more feature-rich product continues
to drive average densities up, resulting in a richer product mix
and higher ASPs. We continue to gain share in the consumer
electronics sector, especially in emerging markets, a function of
the strength of the theme that joined us from Fujitsu. And we
expanded our existing leadership position in the wireless
segment. Once again the fourth quarter produced record demand
for our Mirror bit technology which continues to be the fastest
growing part of our flash portfolio. All told, the fourth quarter
was a record quarter for us in the flash business.

As a reminder, only two quarters into the integration efforts the
progress we have made is rather phenomenal and the fact that
we came very close to making money in the quarter is proof of
our great progress. Rounding out our portfolio the personal
connectivity and solutions group experienced strong sales growth
in the quarter. In fact, in its first full quarter AMD, our AMD
Geode brand achieved near record sales, a testimonial to the
strength of the AMD brand. Our customer centric innovation
approach is working, as we continue to offer a superior
alternative to the competition in those markets we choose to
serve. In manufacturing, AMD continues to demonstrate
world-class operating performance in each of our core businesses.
In flash, we've successfully qualified 110-nanometer floating gate technology for production as we continue our aggressive
transition to 110-nanometer in both our fab 25 in Austin, Texas,
and JV 3 in Japan. This, coupled with the growing adoption of
our MirrorBit technology will enable continued capacity growth
to meet expanded customer demand. In processors, our
manufacturing ramp on AMD 64 is progressing to plan. Yields
are solid. And we are capable of meeting customer demand as
it continues to scale across our entire AMD 64 family. We
continue our steep ramp to 90-nanometer technology and
remain on track for production wafer start in the first half of this year.

Finally, as promised, AMD broke ground on a new
300-millimeter manufacturing facility, AMD fab 36, located in
Dresden, Germany, and adjacent to our award winning AMD
fab 30. AMD fab 36 is expected to be in volume production in
2006. While the fourth quarter was clear evidence of both strong
top-line performance and solid manufacturing execution, we
continued to drive the principles of operational flexibility across and throughout our organization. We're now the clear market share leader in NOR Flash worldwide, we're driving the industry to pervasive 64-bit computing and our immediate success with the AMD Geode family is the confirmation of the strength of
the AMD brand. To summarize, we're seeing increased
confidence among our growing portfolio customers about AMD
and our growing leadership profile. And as Bob will report, the
results today have been very promising. And at this point I
would like to ask Bob to review our fourth quarter and year-end
financial results in addition to the outlook.

Robert Rivet - Advanced Micro Devices - CFO, Sr. V.P.
Thanks, Hector. As detailed in our press release earlier this
afternoon, our fourth quarter sales were $1.206 billion dollars,
up 76% compared to last year's fourth quarter, and up 26%
compared to third quarter of 2003. Top line growth was a
reflection of increased demand in each of our major businesses
across all geographic regions, highlighted by record sales in China and Latin America. The combination of our top line growth
and our operational flexibility measures, resulted in a profitable fourth quarter. In the fourth quarter our net income was $43 million, or 12 cents per share, included in our fourth quarter results is the positive impact of $14 million or 3 cents per share due to an adjustment to the previously recorded restructuring charges and purchase accounting related to the FASL LLC transaction. Operating income was $46 million in the quarter, an improvement of $76 million from the third quarter. Gross margin was 35% for the quarter, up 1 percentage point compared to the third quarter. Fourth quarter gross margin dollars increased by almost $100 million which represents a 40% fall-through on the gross margin line. Research and development spending was $227 million for the quarter, up 6% from the prior quarter. A large portion of the sequential growth was driven by initial fab 36 costs and integrating the new Geode engineering team. Marketing, general, and administrative spending was $162
million for the quarter, up 8% compared to the third quarter,
in line with seasonal merchandising activities. We generated
$389 million of positive cash flow from operations this quarter,
the second quarter in a row we generated positive free cash flow.
We grew EBITDA in the quarter to $358 million at 29%
improvement over our third quarter performance.

Now I'll switch to the business overview for the quarter. First
I'll start with computation product groups, or CPG. Fourth
quarter sales on CPG were $581 million a 38% increase over
the same period a year ago and a 15% increase over the third
quarter. Increased sales were due to solid penetration with our
largest OEM customers in the commercial market, and an
improved product mix. We shipped more units and improved
our ASP's significantly compared to the third quarter. As a result,the CPG business unit improved its profitability in the quarter and made $62 million of operating income. Profit fall-through on incremental sales was excellent at 56%.
Now moving on to our memory group. In the fourth quarter,
memory sales grew to $566 million, up 161% compared to fourth
quarter of 2002, and 34% over the third quarter. In an overall
strong market this performance was primarily driven by denser
mix, stronger M C P sales, and accelerating MirrorBit sales.
MirrorBit sales continue to be a larger percentage of our flash
memory business. Total unit shipments increased by
approximately 16% and average density increased by
approximately 19% compared to the third quarter. The memory
group recorded a small operating loss of $3 million in the quarter, a reflection of solid progress in rapidly integrating Fujitsu and AMD original flash business'. This represents a $46 million bottom line improvement over the third quarter on $142 million of incremental sales, or a 32% fall-through. We have seen some progress on cost reductions in the quarter but offsetting these gains are ramping factory costs to increase output, a higher percentage of M C P sales, and end-cost increases due to weakening dollar. We anticipate improved margin expansion and as we capture the cost synergies we outlined previously, and move to the next technology node in each of our flash factories. Turning to the balance sheet, a few highlights. Cash balance has ended the fourth quarter at $1.313 billion, up $237 million from last quarter. Capital expenditures were $164 million in the fourth quarter compared to $138 million in the third quarter.

Now I'd like to summarize a few comments about the year 2003.
For the fiscal year 2003, AMD sales were $3.5 billion, up 30%
from 2002. Annual sales for CPG were $1.96 billion up 12%
from 2002. Flash memory sales concluded 2003 at $1.42 billion,
up 92% from 2002. AMD's operating loss for the year was
narrowed to $233 million, roughly a billion dollar improvement
from last year, and we made money in the second half of 2003.
In CPG we narrowed our operating loss to $23 million for the
year and in flash memory we lost $190 million for the year. This
was great progress in both businesses, particularly in the second
half of 2003. Cash flow from operation was positive for the year
at $296 million. For the year EBITDA was $814 million positive,
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a $1.3 billion improvement from the prior year. Capital
expenditures for 2003 were $586 million, under our guidance,
and 17% less than 2002 capital expenditures of $705 million.
Now I'd like to discuss the outlook. AMD's current outlook for
the first quarter 2004 is based on the following projections. In
our flash memory business, notwithstanding typical seasonal
patterns AMD expects sales to be approximately flat for the
quarter due to the company's strong position in the market. For
the processor business, AMD expects to be in the range of
industry seasonal patterns. In aggregate, AMD believes the
seasonal patterns are expected to prevail and aggregate sales to
be down slightly. For your modeling, please consider the
following: In the fourth quarter approximately 55 million shares
were included in our diluted share calculation to reflect the
shares from our $403 million convertible debt offering assuming
conversion. At a tax rate of 0, quarterly earnings of 9 cents per
share would trigger the inclusion of these shares. Similarly, at a tax rate of 0, the 21 million shares from our $500 million
convertible debt would be included when our quarterly earnings
reach or exceed 29 cents per share. Our quarterly tax rate is
anticipated to be within the 0 to 10% range throughout 2004.
In 2004 capital expenditures are expected to be around $1.5
billion, including fab 36 building construction and some
equipment purchases, equipment purchases for the completion
of our flash JV 3 factory in Japan, and the equipment to complete
fab 30's transition to 90-nanometer. 2004 depreciation and
amortization is expected to be approximately $1.2 billion for
the year. In 2003 we delivered on our promises. We continued
to tightly manage our cost, launch two major products, fully
integrated FASL into our operations, grew revenue, and
improved our cash position. Moving forward, we believe we
are well positioned for 2004 across all business lines with strong product offerings and a sound financial platform from which to continue to execute. And in 2004 we anticipate being profitable for the year. With that, I'll turn it back over to Hector.

Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director
Thank you, Bob. As I mentioned earlier, the fourth quarter is
a solid demonstration of our capability as a new company. Our
processor business generated a strong profit based on solid ASP
growth, the result of great products, manufacturing excellence,
and an improved brand discipline. Our AMD Athlon 64 and
AMD Opteron products continue to attract an expanding list
of impressive OEMs, starting with IBM, H-P, Fujitsu, Fujitsu
Siemens, and now Sun Microsystems. From high performance
computers to enterprise to consumer we are leading the industry
to a future of pervasive 64-bit computing. And our path to that
64-bit future remains clear. In an environment that is only
becoming increasingly muddy, our performance with expansion
brand is just as impressive. Achieving the leadership position in
less than 90 days, while driving integration efficiencies across
our worldwide organization. We are gaining share in both the
wireless sector, the key driver of high-density demand, and the
embedded sector where our MirrorBit technology is particularly
well positioned for success. MirrorBit technology continues to
earn acceptance as the next-generation industry standard. Our
rapid success with the AMD Geode brand both confirms the
strength and stability of AMD as the strategic silicone supplier
and validates our strategy to drive the X 86 architecture into
new market segments as we move toward empowering a new
generation of tech-capable consumers in emerging markets.
Looking forward, we are increasingly confident in our capacity
to succeed. Our customer base continues to expand and improve
in all our businesses. And a growing set of customers feels that
the strategic contributor to their success. We entered this new
year with the strongest product portfolio in our history and the
world-class manufacturing prowess to produce them in volume.
We have our cost structures moving in the direction we want
them, and the capacity to leverage even more synergies from
our flash business. We continue to add very high quality talent
to our ranks around the globe. We know that our vision and
leadership will be confirmed and in some cases copied by our
competitors, but even if they copy us, our customer centric
innovation approach will produce a strong customer bond and
the insight to lead new ways of opportunity. We joint the SIA,
the WSPS, and the growing number of industry leaders in
expressing our optimism for the coming year, and for us the
opportunities are clear. We must establish MirrorBit as the new
technology standard in flash memory. We must establish the
strong footprint in the enterprise with AMD 64, and we must
empower new technology users in emerging markets. As I have
said before, we are a new AMD, and we're very proud of the
progress we have made and of the leadership opportunities that
we have created with and for our customer.

Before I close, I would like to once again thank the thousands
of AMD employees for all the hard work to get us back to
profitability in this past quarter. We entered the new year poised and ready to deliver on the promise of sustainable prosperity for our customers, our shareholders, and ourselves. Thank you for your attention, and now I would like to turn it back to Mike for the Q and A.

Q U E S T I O N S A N D A N S W E R S

Mike Hasay - Advanced Micro Devices - Director of Investor
Relations
Operator, let's get started with the Q and A.
Operator
Thank you. Ladies and gentlemen, if you'd like to register for
a question please press the 1 followed by the 4 on your
telephone. You will hear a three-tone prompt to acknowledge
your request. If your question has been answered and you would
like to withdraw your registration, please press the 1 followed
by the 3. If you are using a speakerphone please lift your handset before entering your request. One moment please, for our first question. Our first question comes from the line of Michael
Matibia from CSFB. Please proceed.

Michael Matibia - CSFB - Analyst
Thanks a lot. Great job on the execution again guys.
Congratulation. The first question really is on the wireless side.
It sounds like if I read your comments correctly, that you're
acknowledging a seasonal wireless quarter but your guiding for
flat. If that's a correct interpretation can you give us more color if that's more share gain or ASP's or what?

Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director

I'm going to ask Andre to comment on this a little bit from the
customer perspective, but the market in general being very
consumer heavily oriented and the fourth quarter being a very
strong seasonal consumer market and wireless handsets being an
incredibly strong consumer product, it is the expectation of the
industry as a whole that the first quarter will experience
downward movement in that particular activity, nothing out of
the ordinary, just the traditional first quarter has changed. As
for any specific market segments or comment, Henri, would
you?

Henri Richard - Advanced Micro Devices - Sr. V.P. Of Worldwid
Sales & Marketing

Thank you, yes Michael. I believe that we will continue the
trend that we set in Q3 and Q4. It's not particularly new
customers just an increased share in existing customer, increase
of the ASP and mix.

Michael Matibia - CSFB - Analyst

Great. And then Bob, maybe a follow-up. Certainly a little bit
less profitability in that segment. Should we expect profits to
come down a little bit as you grow your wireless next quarter
and PC's are down, or are you doing more on the cost structure
side there?

Robert Rivet - Advanced Micro Devices - CFO, Sr. V.P.

No, we should continue to have in flash, again to remind you,
it's only been 180 days since we actually integrated these business.
We focused on delighting the customer and sales capture. We're
working on cost reductions as we speak and cost synergies so
you will see margin expansion as we move forward, on the same
sales level.

Michael Matibia - CSFB - Analyst

Great. Last question for me really on the capacity side. Do you
guys--do you try to pull into capacity, do you feel like you need
to because of some bottlenecks in it, if so, given the lead times
seem to be stretching out are you having any problems to grow
capacity?

Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director

We have -- we've started executing on capacity on leading edge
technology for flash back in last summer, and the customers
alerted us that this was a need coming up and I think we
executed that well. As a matter of fact, today we're meeting
customer demands, on MirrorBit, on high density, high
performance, flash product. However, if I take us back to the
third quarter of last year, frankly you know, on the lower density older factories, older technologies, we actually shut down our factories for a couple of weeks in the third quarter last year due to an unanticipated slowdown in those particular segments. Not long after we came back from the shutdown we started experiencing an upside by customers in their expectations, and since then, being in the approximately the August time frame until now, that demand has increased dramatically. So the places where we are experiencing very tight demand, it's actually in the lower products, lower density, and we are rapidly trying to move as much of the more newer product to the newer factory so we can make space in the older factory to increase that capacity. We think that that tightness in the low end of the spectrum will probably last us through the second quarter.

Michael Matibia - CSFB - Analyst
Thanks a lot, guys.

Operator
Our next question comes from the line of Andrew Root from
Goldman Sachs. Please proceed with your question.

Andrew Root - Goldman-Sachs - Analyst

Yes. Thanks a lot. Quick question on the 90-nanometer ramp.
If you could talk a little bit about how that will dictate whether you can stay on the very strong operating leverage that you've shown in microprocessors, and I know that you'r scheduled for Q2 production wafer starts and I would assume early Q3
shipments, but is there a critical time during the quarter, are
there signs that give you confidence that this ramps going
normally, others, not just the microprocessors but in other logic
segments have had significant delays in 90-nanometer. I'm just
curious if you think you're free of most of the issues that they've faced.

Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director

This is an incredibly difficult technology and challenging and
we're very fortunate to be partnering with a company that I
believe is the premier leader in technology, meaning IBM, with
working collaboratively with them we increase our confidence
in 90-nanometers even though the alliance with IBM really is
only effectively starts at the 65-nanometer note, but because of
that relationship we both have really been able to talk a lot of
tough issues, and I am very happy, very pleased, and thrilled
with the progress that our teams have made in our 90-nanometer
implementation. The results in our engineering work is very
promising, encouraging, and we're very, very bullish and
optimistic about what that will do for our business.

Andrew Root - Goldman-Sachs - Analyst

Is there a time you'd have to decide to go to production wafers
or to go to another tape-out, another rap of the product? I know
some of your competitors have had to go to three or four
tape-outs in the 90-nanometer product.

Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director

Well, you know, again, I cannot he future is tough to predict
but I can tell you our plan right now is based on always having
to do some tweaking on product and taking that into account,
and that is also factoring into the expectation the shipments of
product will occur in the third quarter.

Andrew Root - Goldman-Sachs - Analyst

And then, Bob, just the second part of that, if 90-nanometer
ramps on time, 50 to 60% incremental operating leverage is
what we should look for in M P U's, or does that change at all?

Robert Rivet - Advanced Micro Devices - CFO, Sr. V.P.

No, that actually would enhance the situation from today's level
but obviously as we ramp AMD 64, that currently is a bigger
die than the existing Athlon XP, so we need to do that to
maintain that 50 to 70% incremental fall-through.
Andrew Root - Goldman-Sachs - Analyst
Thanks a lot.

Operator

Our next question comes from the line of Tom Thornhill from
UBS. Please proceed with your question.

Thomas Thornhill - UBS - Analyst

On the processor side can you comment at all on unit growth
or ASP trends in the quarter?

Henri Richard - Advanced Micro Devices - Sr. V.P. Of Worldwid
Sales & Marketing

Tom this is Henri, we experienced both unit growth and ASP
growth on the trajectory that we had set in Q3.

Thomas Thornhill - UBS - Analyst
Okay. And were -- would ASPs have been up even without
shipments of the Athlon 64?
Henri Richard - Advanced Micro Devices - Sr. V.P. Of Worldwid
Sales & Marketing
Absolutely. On the strength of our Athlon XP brand in the
fourth quarter we increased ASP on all product segments.
Thomas Thornhill - UBS - Analyst
Excellent. Another question that's probably more accounting
than anything else, if I look at the minority interest number,
$19.4 million, that's 40% of the loss, about $48 million or so
from the flash side, how do I reconcile that with the $3 million
operating loss number? How do I get from one to the other?
Robert Rivet - Advanced Micro Devices - CFO, Sr. V.P.
Well, it's a little hard. The business model is a fairly complex
one. Again, you have to remember the FASL business operates
as the manufacture selling to the two parents of the distributor,
that equates a margin back to the parents. Obviously we're one
of the parents, so that's the piece of the equation you're missing,
plus other technology associated cost transfer between the two
organization, so it is a little more complex, I think off line we
can kind of help with you your modeling, because you can't
just divide and come up with the answer.

Thomas Thornhill - UBS - Analyst

Yes, I found that out. Question on incremental margin.
Incremental margin on the processor side fall-through 56% of
the operating line, excellent, a little less than I would have
anticipated given the revenue growth on the flash side. What is
the prospect of improving that incremental fall-through and
what is the a appropriate range that we should be targeting over
the next couple of quarters for incremental margin in that
business?

Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director

A couple of things, and let me do product technology, then
Bob will make a comment on the impact of that, and that is
when we went live as a new organization with a combination
of Fujitsu and AMD in July 1st of last year our emphasis as Bob
very correctly pointed out was to make sure we met customer
demand, that no customers were affected in the transition, and
all our energy was that the merging of these organizations with
the serving customers was uppermost in our minds. Shortly after
that we've been looking at the synergies which we just have
begun to identify. The synergies come in two places. One is
the cost efficiency of two organizations that allows you to
eliminate some levels of redundancy. That's beginning to occur
and we think we're going to experience that even more fully
in the next quarter. The other part which I believe is the most
significant is that both organizations are now aggressively driving the technology changes, moving to 110-nanometers in our
factory and beyond 90-nanometers soon there after. Those things
are, when you project them out, bringing about a tremendous
opportunity for leverage in -- as revenue growth. Bob Rivet,
would you like to answer?

Robert Rivet - Advanced Micro Devices - CFO, Sr. V.P.

Yeah, to your ultimate question on how much should we model
for incremental fall-through, Hector's really laid out the
groundwork here. As we move through time it will take us a
little bit of time to reach these cost synergies, to get to the next technology node, while we also ramp capacity as you probably
-- if you heard, we're actually ramping JV 3, filling out the rest of that factory. There are some cost increases taking place, but bottom line is there's no reason this business shouldn't be delivering 50 cents plus on the dollar of incremental profits as we work through the synergies and the right technology nodes.

Thomas Thornhill - UBS - Analyst

So maybe by the second half?

Robert Rivet - Advanced Micro Devices - CFO, Sr. V.P.

I'd say that might be a little too far out, but I'd say not first
quarter, second quarter you'll see some, third quarter. I think
you'll see continued progress each quarter.
Thomas Thornhill - UBS - Analyst
Thank you.
Operator

Our next question comes from the line of Michael McConnell
from Pacific Crest Securities. Please proceed with your question.


Michael Mcconnell - Pacific Crest Securities - Analyst
Thank you. Regarding the launch or the ramp of Athlon 64
looks like we're coming up on -- you guys reducing the cash
size by roughly in half to reduce the die size. Do you plan on
any other die size reductions as we get closer to the
90-nanometer version?
Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director
At this point in time we don't have any product plans to
announce right now
Michael Mcconnell - Pacific Crest Securities - Analyst
Okay. On the flash side, I was wondering just the competitive
dynamics right now in terms of pricing, if you could give us an
update on the high end as well as the low end regarding flash.
Thank you.
Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director
On the high end, both for Floating Gate as well as MirrorBit,
we have experienced beginning in the last quarter stabilization
of pricing, and when it comes to new opportunities and new
customers, we are following the demand supply equation and
appropriately getting compensated for that. On the older
technology, it's frankly still very competitive. There are a lot of
players around that scrambling for survival, I would say, and
frankly that is -- continues to be a very competitive space. All
in all, though, I expect flash products to continue to experience
tremendous competition. We are planning and preparing to
have what you would expect on a memory type of product,
degredation of pricing and as a result, accompanying the
appropriate cost reductions to ensure that we're more than just
competitive. Henri is there anything you need to add on the
pricing side?
Henri Richard - Advanced Micro Devices - Sr. V.P. Of Worldwid
Sales & Marketing
Our business is very strategic in nature due to our customer
base. As you pointed out Hector it's a very competitive
environment, but there's some stability I think what we're seeing
in the channel for the opportunistic buyers is clearly a firming
up of the pricing, because of the long lead time. That's all I
would add.
Michael Mcconnell - Pacific Crest Securities - Analyst
Thank you very much.
Operator
Our next question comes from the line of Joseph Osha of Merrill
Lynch. Please proceed with your question.
Joseph Osha - Merrill Lynch - Analyst
Hi, guys. Congratulations on progress, progress to profitability
here. Wondering if I can get some qualitative sense in terms of
the, you know, percentage of mix either in unit or revenue
terms that was comprised by the Kade architecture. Are we
talking say just a couple hundred thousand units here?
Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director
We are. We gave some indication of our plans before. We are
pleased with where we are in our plans. We're happy with our
progress. We don't feel that we have varied at all significantly
from that and expect that to continue. As far as the mix, you
know, we don't give that out, but let me throw out some ideas
and help you how we're thinking about it. That is on the server
side, if you segment the market by that way, we go from 0 to
practically 100% because we haven't really been in much of a
participant on the server side. If you are going to the
high-performance segment of the client we're definitely very
strong there and currently with Athlon 64 FX, being a very,
very strong player on that side. When it comes on to the rest
of the client space, you're looking now at a transition time.
You're going from 32-bit to 64-bit, as well as from one
architecture to another, so it's a little more complex than just
the transition and the product. We are very happy with the
progress and we expect that as software becomes more readily
available in the second half of the year on the client side, that
that will momentum will dramatically increase. Right now our
plans is to have a very aggressive ramp throughout the year for
the K 8 architecture.
Joseph Osha - Merrill Lynch - Analyst
Okay. Thank you. Second question, Bob, let me just save you
some time here, rather than going off line with everyone, we'd
all like to know how this line item that amounts to about half
of reported income works. I know it's a little complex, but can
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AMD - Q4 2003 Advanced Micro Devices Earnings Conference Call
you perhaps throw some guidelines out that help us to
understand how to forecast that item?
Robert Rivet - Advanced Micro Devices - CFO, Sr. V.P.
You're talking on the memory?
Joseph Osha - Merrill Lynch - Analyst
The $19 million add-back, yes.
Robert Rivet - Advanced Micro Devices - CFO, Sr. V.P.
Well, obviously that's their share of just the FASL part of the
business. Like I said, the piece of the P & L you don't see that
we put into the consolidated AMD results of course is the
distributor P & L, I'll call it of AMD. That P & L would
obviously have the full value to whatever we sell to end market.
It would have the margin that we've negotiated with FASL to
come to each of the parents, and that's reciprocal between Fujitsu
and AMD. Besides the royalty, et cetera. I'm not sure I can do
justice for this on the phone call, to be honest, because there
are shared service agreements between the parent and the
subsidiary, so there's a lot of different factors that come into play.
In the non FASL piece of the equation, but you see it in the
operating income line.
Joseph Osha - Merrill Lynch - Analyst
Okay. But this is a big line item, Bob. Can you give us some
sense as to what, as analysts, we should do here?
Robert Rivet - Advanced Micro Devices - CFO, Sr. V.P.
Yeah. The real simple one,Joe, is we anticipate through cost
synergies and aggressive movement in technology nodes that
we will be sharing in profits with Fujitsu, not losses, and so that
number will be getting less, and turn to be a charge for AMD
versus a credit, as time goes on.
Joseph Osha - Merrill Lynch - Analyst
Okay. Very well. I believe that's it. Thank you very much.
Robert Rivet - Advanced Micro Devices - CFO, Sr. V.P.
Thank you.
Operator
Our next question comes from the line of Quinn Bolton from
Oppenheimer & company. Please proceed with your question.
Quinn Bolton - Oppenheimer & Company - Anlayst
Couple questions on flash business. One, you talked about
growing shipments of the M C P, or the multi-chip module.
Can you just try and quantify that in terms of percent of
shipments? I'm assuming you get lower margins on that business
than you do on just the actual flash die. Then if you could also
talk a little bit about just the end market split. You talked about
strength in wireless, strength in consumer. Can you give us a
sense as to what percentage of sales each of those end markets
contributed to the flash business? Thanks.
Robert Rivet - Advanced Micro Devices - CFO, Sr. V.P.
First, let me kind of make sure we put this in brackets. Obviously
the flash business quarter on quarter grew significant. You know,
in the 33%, 33, 34% quarter on quarter. The fastest growing
piece of that business was our MirrorBit. That grew at a
significantly higher than the average of the whole business. Next
in line was the -- is the M C P part of the business. I don't want
to give the details on that piece of the business, of what's the
pieces, but it did grow more than the average. Actually,
considerably more than the average. And, yes, you're right,
while it carries high sales value, the gross margin is a little bit
less on an MCP than I'll call it a standard floating gate NOR
technology or MirrorBit technology.
Quinn Bolton - Oppenheimer & Company - Anlayst
Are there things you can do, particularly insourcing some of the
other types of devices, either the Nan flash or the SRAM that
go into the multichip packages to improve the profitable of the
MCPs?
Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director
We have plans that, you know, the details of which, of course,
we wouldn't disclose but we have very, very aggressive and quite
exciting road maps to do a, I would say somewhat of a unique
job of creating a P&L around the MCP business, which is quite
different. We will be able to benefit more than just passing
through the cost of additional components.
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FINAL TRANSCRIPT
AMD - Q4 2003 Advanced Micro Devices Earnings Conference Call
Quinn Bolton - Oppenheimer & Company - Anlayst
Okay. Then just the end market split in the flash?
Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director
The only indication I can give you is that the wireless business
was strong really around the world, where obviously a lot of
the growth in the embedded business came from Asia Pacific,
and particularly on the strength of the Fujitsu sales team.
Quinn Bolton - Oppenheimer & Company - Anlayst
Okay. Thank you.
Operator
Our next question comes from the line of Chris Donnelly from
J.P. Morgan. Please proceed with your question.
Chris Donnelly - J.P. Morgan - Analyst
Just a couple of quick clarifications. You said you'll be able to
get some cost savings. Does that mean you think gross margins
can be flat in Q1 even if sales are down a little?
Robert Rivet - Advanced Micro Devices - CFO, Sr. V.P.
That's always a challenge in this business to have gross margins
stay the same on lower sales. It's a possibility. It kind of depends
on the mix of the businesses, but, you know, you can't lose too
much altitude in this business being still fairly fixed cost oriented
and maintain that without ASP lift or significant cost reductions.
It will take awhile to get to the technology nodes that Hector
talked about, in particular in the flash business, and as we talked
about in the microprocessor business also, if 90-nanometer comes
on in the second half of the year. So, I guess long answer to
your question, a little bit can hold, if it's a lot, it's tough.
Chris Donnelly - J.P. Morgan - Analyst
That's fine. Definitely fair. And then on the flash business if you
take a look at say your prices in aggregate for Q1 do you think
they will be flat, up, or down for flash overall?
Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director
You know, at this point in time, we expect the mix to continue
to improve. We've had a trend of significant and fairly aggressive
density uplift on the product and performance and new
technologies. As a result of that, the unit pricing might go up,
but the unit number of units may be less.
Chris Donnelly - J.P. Morgan - Analyst
Is that a yes or a no?
Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director
Well, as we said, we expected in our flash revenue, given all the
things we're doing, is that we have an opportunity to have flat
sales quarter on quarter.
Chris Donnelly - J.P. Morgan - Analyst
Okay. Thanks.
Operator
Our next question comes from the line of Eric Rothdeutsch,
Friedman, Billings, Ramsey. Please proceed with your question.
Eric Rothdeutsch - Friedman, Billings, Ramsey - Analyst
Hi, thank you. Question for Henri. Henri, in terms of units for
flash memory. What is the highest volume density that you're
currently shipping in terms of units, and what is the smallest
density you're currently shipping?
Henri Richard - Advanced Micro Devices - Sr. V.P. Of Worldwid
Sales & Marketing
I'm not going to give you the highest density volume, I'm just
going to tell you our range goes from 1 megabit to 256 megabits
and I'm going to remind you that we've got 512 megabit
currently on the qualification.
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FINAL TRANSCRIPT
AMD - Q4 2003 Advanced Micro Devices Earnings Conference Call
Eric Rothdeutsch - Friedman, Billings, Ramsey - Analyst
You mentioned that lead times are also very long. What are lead
times currently?
Henri Richard - Advanced Micro Devices - Sr. V.P. Of Worldwid
Sales & Marketing
It really varies by product. But, you know, lead times can be as
much as 13 weeks.
Eric Rothdeutsch - Friedman, Billings, Ramsey - Analyst
Thank you.
Operator
Our next question comes from the line of Dan Scovel from
Needham & Company. Please proceed with your question.
Dan Scovel - Needham & Company, Inc. - Analyst
Thank you. Your microprocessor revenue was up 15% quarter
to quarter and you said ASPs were, I guess, up significantly. We
can assume, basically, most of that gain was on the ASP side and
the lesser of that was on the unit side?
Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director
That's correct.
Dan Scovel - Needham & Company, Inc. - Analyst
Also you're speaking a little bit vaguely, but I guess you consider
yourself--you did reach your goals of shipping hundreds of
thousand on the AMD 64 last quarter?
Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director
We're pleased with where we are on AMD 64.
Dan Scovel - Needham & Company, Inc. - Analyst
And also, Bob, on the accounting side here, what's the
adjustment on the convert to calculate the diluted EPS?
Robert Rivet - Advanced Micro Devices - CFO, Sr. V.P.
We currently included in the current EPS calculation was 55
million additional shares. You'll see it on the page. We had about
an 18% of dilution between basic and diluted.
Dan Scovel - Needham & Company, Inc. - Analyst
And there's a net income adjustment for the interest income
there?
Robert Rivet - Advanced Micro Devices - CFO, Sr. V.P.
Yeah, the model I'd use is about 5.2 million a quarter. Add-back.
Dan Scovel - Needham & Company, Inc. - Analyst
That's what I was looking for. Thank you.
Operator
Our next question comes from the line of Adam Parker Sanford
and Bernstein. Please proceed with your question.
Adam Parker - Sanford C. Bernstein & Company, Inc. - Analyst
Same issue with the diluted versus basic EPS. Is the right number
$43 million in net income divided by the $4.16 a share? Because
that seems to give 12 cents, not 10.
Robert Rivet - Advanced Micro Devices - CFO, Sr. V.P.
I don't know where you got 10.
Adam Parker - Sanford C. Bernstein & Company, Inc. - Analyst
Well, or are you adding back 5 million to the 43 to do the actual
calculation? Seems like the basic and diluted EPS are the same
at 12 cents but the diluted share count is 19.8% bigger so I'm
just trying to see what I'm not understanding here.
Robert Rivet - Advanced Micro Devices - CFO, Sr. V.P.
The math is you take $43 million and change divided by the
basic to get the basic EPS.
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FINAL TRANSCRIPT
AMD - Q4 2003 Advanced Micro Devices Earnings Conference Call
Adam Parker - Sanford C. Bernstein & Company, Inc. - Analyst
Right.
Robert Rivet - Advanced Micro Devices - CFO, Sr. V.P.
You take the $43 million of net income, add back the interest
charge associated with the convertible, and then do the math.
Adam Parker - Sanford C. Bernstein & Company, Inc. - Analyst
So you're adding that 5.2 back.
Robert Rivet - Advanced Micro Devices - CFO, Sr. V.P.
Right.
Adam Parker - Sanford C. Bernstein & Company, Inc. - Analyst
Okay. On the share count, just another issue, what was the
impact from options here, you know, kind of sequentially, and,
you know, in terms of the 19.8% increase in the share? I know
you said the bulk of it came from the -- one of the converts,
but can you help at all with what this share count balance was
from any options exercised?
Robert Rivet - Advanced Micro Devices - CFO, Sr. V.P.
If you have my press release in front of you, you can see the
transition in basic, $347 million to $357 million. That's really
option activity.
Adam Parker - Sanford C. Bernstein & Company, Inc. - Analyst
Okay. So just the 10 million, and the rest is.... Okay. And then
can you add some color to the deferred income on shipments
to distributors? What does that imply about revenue in the next
couple of quarters? Can you just remind me how that works?
Robert Rivet - Advanced Micro Devices - CFO, Sr. V.P.
The way it works is obviously what we do is we ship product
in the appropriate mix that we agree with, with our distributors,
obviously that will range from our server base product, AMD
64 Opterons to our lowest based product, so whatever it is.
Then we count it at the end of -- at the end of each quarter we
count what's still left. Whatever is still left we do not record as
sales, obviously it's mix-dependent what's still on the shelf. We
clearly see the transition that's taken place and we have more
valuable product on the shelf of the distributors as we continue
to produce and make progress on the whole portfolio of
products.
Adam Parker - Sanford C. Bernstein & Company, Inc. - Analyst
Okay. Sorry, one last question. Can you talk about your plan
for op ex going forward? I think R&D and SG&A were up,
about 6 and 8% sequentially. How should we think about op
ex for 2004?
Robert Rivet - Advanced Micro Devices - CFO, Sr. V.P.
As Hector said, you know, we're optimistic on 2004, and we
will toggle those appropriately. At this point in time I'd play in
they're going to grow a little bit. As we take advantage of market
opportunities to capture more customers to deliver the right
technologies, et cetera. So it will grow. Not as much obviously
in the first quarter, but, you know, we'll have to see how it
unfolds as time goes on.
Adam Parker - Sanford C. Bernstein & Company, Inc. - Analyst
Okay. Thank you.
Operator
Our next question comes from the line of Hans Mosesmann
from Schwab and SoundView. Please proceed with your
question.
Hans Mosesmann - Soundview Technology Corp. - Analyst
Most of my questions have been answered. I do have a question
regarding flash bit growth for '03. Do you guys have an
expectation of what that was, and what the forecast is for flash
growth for you guys in 2004.
Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director
We continue to see obviously exponential growth in bits
shipped, there's nothing in the demand of high-end devices
that's going to change that for '04.
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FINAL TRANSCRIPT
AMD - Q4 2003 Advanced Micro Devices Earnings Conference Call
Hans Mosesmann - Soundview Technology Corp. - Analyst
So do you have a number for '03? Was it 50%? 100%? Will that
bit growth in '04 match that, that you saw in '03?
Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director
I don't have the data for the whole year, but for the last quarter
it was 30% plus.
Hans Mosesmann - Soundview Technology Corp. - Analyst
That's sequentially or year-over-year?
Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director
Sequentially.
Hans Mosesmann - Soundview Technology Corp. - Analyst
Then one last question. Do you have market share goals for
flash and or processors in 2004? Thanks.
Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director
We have, of course, our internal plans, what we think we can
accomplish on both flash and processors. We don't publish that,
as you can imagine.
Hans Mosesmann - Soundview Technology Corp. - Analyst
Okay. Great. Thank you.
Operator
Our next question comes from the line of Mark Edelstone from
Morgan Stanley. Please proceed with your question.
Mark Edelstone - Morgan Stanley - Analyst
Good afternoon, guys. First question is on the Athlon 64 and
Opteron product line combined. Obviously you had a good
momentum here so far. Do you have the ability, do you think,
to be able to produce and ship as much as a million units here
in the first quarter, and then I have a follow-up question for
you as well.
Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director
Let me just talk about our capability in general terms, Mark.
We currently are running our factory as a mix of 130-nanometer
both Athlon XP and next-generation hammer product. We --
if I -- at the risk of sounding somewhat simplistic here, it's kind
of like a knob that we're dialing, and as to how much of that
we want to be Athlon XP and how much we want to be
Hammer or Reented. We're basing the market with our
customer very carefully as to what they want and need and
planning this result from the beginning because we anticipate
the beginning of the 90-nanometer conversion to really give us
a big boost in our capability for particularly the K-8 hammer
architecture, but even at the 130-nanometer I want to make
sure it's clear that today, we have the capability of doing if we
wanted to, more than a million a quarter, well more than a
million a quarter. Significantly more than a million a quarter,
so we're throttling that based on our plans, which are, you know,
how to penetrate particular customer segments and accounts
and the expectation in the second half of the year, other things
will occur relative to software, where we will then be at
90-nanometers and be able to execute a little more leisurely
how many units we can produce.
Mark Edelstone - Morgan Stanley - Analyst
When you tweak the knob, so to speak, should we expect that
the peak in the 32-bit Athlon version would peak once your
90-nanometer technology really ramps?
Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director
By peaking, I'm trying to understand what you mean by the
question. You mean if the Athlon XP will peak?
Mark Edelstone - Morgan Stanley - Analyst
Yeah, if we did the 32-bit Athlons, obviously as the Athlon 64
ramps up, at some point that's going to cannibalize the unit
opportunity you have overall. If we make the assumption that
your total units continue to grow with the market, at some point
we're going to expect the 32 Athlon units to basically peak, and
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AMD - Q4 2003 Advanced Micro Devices Earnings Conference Call
I'm wondering if that happens once the 90-nanometer capacity
ramps up or if you see that happening before that.
Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director
I think it would be fair to say that as the 90-nanometer ramps
up, there is a significant shift toward the KA architecture more
and more. I do want to take the opportunity though to point
out that Athlon XP is not a product in our view, it's a brand,
and it's intended to address the best value that you can have in
today's applications. That will continue for some time. We see
that as a very powerful brand, has done well for us. Athlon 64
will become the next generation, the transition to 64-bit,
followed by Athlon 64 FX, which is the best you can get.
There's nothing closer to that in performance, then Opteron,
of course, is the server and high performance computer end
space. We see this as a four tiering of our brand. We'll continue
to manage that as customers work with us, therefore we're
beginning to talk less about the product transition and more
about the segment.
Mark Edelstone - Morgan Stanley - Analyst
Fair enough. I appreciate that answer, Hector. One final
question, if I could, for Bob, going back again to the minority
interest line, I know there's lots of give and take here as you go
forward, but as we go into the second half of 2004 should we
see that line toggle to basically profit for the combined flash
operations, or would you expect to still be paying out minority
interest in the way of losses?
Robert Rivet - Advanced Micro Devices - CFO, Sr. V.P.
No, to me, if we execute to our plans, which we have every
indication we will do, and the market continues to behave the
way we think it will, that line will actually become a charge for
AMD, because the FASL organization will make money, and
we will share that 40% of that profit with Fujitsu. So it'll,
it'll--you know, my forecast, if I was doing it for you guys,
would be that that number will become smaller approaching
zero and will turn positive as the year unfolds.
Mark Edelstone - Morgan Stanley - Analyst
Great. Thank you very much, guys.
Operator
Our next question comes from the line of Clark Westmont of
Smith Barney. Please proceed with your question.
Clark Westmont - Smith-Barney - Analyst
Hi guys, Hector, congratulations on delivering your
commitment of three months ago of turning into the black this
quarter on the bottom line. Are you going to do the same in
the March quarter? Are you going to be profitable in March?
Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director
Oh, you know, we are in the situation where revenue drives
everything right now. We've done everything we can, that I
believe is appropriate on cost, we've got our factory sufficient,
we've done everything we've put in place. I believe that if the
market is strong we certainly are going to do well, and at the
current plan, we do not plan to lose money in the first quarter.
Clark Westmont - Smith-Barney - Analyst
So that's it. Thanks.
Operator
Our next question comes from the line of David Wong from
A.G. Edwards. Please proceed with your question.
David Wong - A.G. Edwards - Analyst
Thank you very much. With your current 90-nanometer plans
of starting production wafers somewhere in the middle of the
year when do you expect to be able to announce your first
90-nanometer products?
Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director
Our current plans to ship product to customers for revenue in
the third quarter of this year.
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FINAL TRANSCRIPT
AMD - Q4 2003 Advanced Micro Devices Earnings Conference Call
David Wong - A.G. Edwards - Analyst
So the announcements will come in the second quarter, or we'll
get details of the product in the third quarter?
Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director
Frankly, I don't remember the exact dates. I'd rather not give
you one but can get you our plans when we intend to make
announcements.
David Wong - A.G. Edwards - Analyst
Great. Thank you.
Operator
Our next question comes from line of Hayden Ugan from
Susquehanna financial group. Please proceed with your question.
Hayden Ugan - Susquehanna Financial Group - Analyst
Wondering what kind of inventory level do you see channel
for both of your flash products as well as your CPU's?
Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director
On the CPU side we have a policy to keep our channel below
four weeks, we stick to that. In the flash side I will tell you that
the channel inventory is depressed right now. I don't have a
data point to give you. I would say it's down to probably less
than twoe weeks in some of the high run-rate parts.
Hayden Ugan - Susquehanna Financial Group - Analyst
Then on your PC business, on Q4, do you ship any Duron
processors?
Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director
We shipped very small quantity of Duron, which was really the
end of life shipments of this product.
Hayden Ugan - Susquehanna Financial Group - Analyst
Okay. So going in Q1 do you expect to have any more Durons?
Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director
Irrelevant. Irrelevant quantities.
Hayden Ugan - Susquehanna Financial Group - Analyst
Then what is your -- when do you expect to have your first
product coming out on 300-millimeter?
Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director
Well, we've we expect to be in production in 5-36 in the year
2006, and that about right now, given the challenge in making
and forecasting this sort of technology, that's as close as I tell
you a date right now.
Hayden Ugan - Susquehanna Financial Group - Analyst
Final question is on your Geode. Right now do you have any
plan to expand that product line by integrating AMD processor
core into that product?
Hector De Ruiz - Advanced Micro Devices - President, CEO,
Director
Geode is going to become part of our road map of X 86
products. We are extending it rapidly, and we'll communicate
that as we get things lined up. This will actually be a road map
of low-cost, low-power and in some cases a synthesizable core.
I don't want to go into what cords are going to go into what
product but it's going to be a broad range of applications for the
embedded and consumer space.
Hayden Ugan - Susquehanna Financial Group - Analyst
Great. Thank you.
Mike Hasay - Advanced Micro Devices - Director of Investor
Relations
Operator we're going to take one more question. Thank you.

Operator
Our next question comes from the line of John Barton from
Wachovia Securities. Please proceed with your question.
John Barton - Wachovia Securities - Analyst
Just trying to piece together some of the data on the flash front
from comments you've made. I think I heard you say that the
lower densities were tight. I know at one point you mentioned
that the longest lead times were in the 13 week range but then
you made another statement that the older technologies are very
competitive on a pricing perspective. I guess I'm putting words
in your mouth by making the correlation between older
technologies and lower density but if indeed that's the case, it
seems to run against the tightness in the market. If you can just
provide us some input there I'd appreciate it. Thanks.

Henri Richard - Advanced Micro Devices - Sr. V.P. Of Worldwid
Sales & Marketing

The big difference between the high end and the low end of
the flash market is who's playing. At the high end of the market
the technology is not limited to the players to really two to three competitors. At the lower end, as Hector pointed out there's still a lot of people in the survival mode and that sometimes drives, you know, pricing behavior. That are not in line with your logical conclusion of tightness equals better pricing.

John Barton - Wachovia Securities - Analyst
Great. Okay. Great. Thank you very much