Jack Hammered, I agree that SB's analysis is wanting. They exhibit a very common bias regarding AMD: They treat AMD as a flash company which likes to waste money on processors. (This despite the fact that in Q3, processors were profitable while flash did not achieve profit, creating an overall lose. Go figure!)
Their slight raising of Q4 expectations was based totally on flash since they said processors would come in right on target. Then their sudden advisory on A64s (just a few hours later) said there is (was? maybe? They hedge a lot!) a manufacturing problem in Q4, but higher flash prices would make up the difference.
So the answer to your riddle: So they think that going from 170k to 500k A64's is going to cause earnings to go from .02 to (.05) ?
may be they expect flash to not perform as well in Q1.
Everything I've seen argues otherwise - that the NOR flash market will be tighter in Q1 than it was in Q4. Also, as you point out, the processor mix goes more to higher end product, which will help counter the seasonally soft Q1. Overall processor volumes will be lower in Q1, but ASPs should be healthy. Hard to say which factor will be more important towards total revenue - maybe SB thinks processors units will fall off more than the changed mix can help.
However, overall the juxtaposition of the two contradictory reports from them today does not make them look very good.
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