Analyst Conference Summary

conference date: January 22, 2009 @ 2:00 PM Pacific Time
for quarter ending: December 31, 2008 (4th quarter 2008)

Forward-looking statements

Overview: Another disastrous quarter, as expected.

Special note: because of the effects of discontinued operations, one-time income based on sale of technology license revenue, and new plan to spin off manufacturing operations, investors should look carefully at all the data before reaching conclusions on the value of the company.

Basic data (GAAP):

Revenue from continuing operations was $1.16 billion, down 35% sequentially from $1.80 billion, and down 33% from $1.74 billion year-earlier.

Net loss was $1.42 billion, compared to a loss of $127 million in Q3 2008 and a loss of $1.77 billion year-earlier. For continuing operations net loss was $1.41 billion.

EPS (earnings per share) were negative $2.34, compared to negative $0.21 in Q3 and negative $3.06 year-earlier. For continuing operations loss was $2.32 per share.

Guidance:

Visibility is limited. First quarter 2009 revenue is expected to decrease sequentially. Reducing break even target to $1.3 billion, by Q2. 40%+ gross margin goal. R&D to be reduced to $300 million per quarter. SG&A around $200 million per quarter. Depreciation and amortization $100 million per quarter, capital expenses $45 million per quarter. There will be a restructuring charge in first quarter.

Conference Highlights:

Industry visibility is poor. Trying to further reduce break even point. "We expect [our actions] ... will leave us well positioned for a global market recovery."

Fourth quarter is usually the best quarter of the year, but due to the economy global demand was weak and there was an inventory correction in the supply chain. This is continuing into this quarter, and is particularly acute for notebook computers. Headcount to be reduced by another 9% and salaries are being reduced. But staying on track for product roadmap and 32nm technology development.

Net loss of $1.42 billion includes $996 million in special charges: ATI impairment of goodwill, $684 million, inventory write-downs $227 million, marketable securities loss $21 million, amortization $30 million, restructuring $50 million, Foundry Company formation costs $23 million.

The Foundry Company transaction is expected to close in February.

Excluding 3rd quarter process technology license revenue of $191 million, revenue was down 28% sequentially.

The loss from discontinued operations was $10 million, or $0.02 per share.

There was a $39 million gain on debt payback.

Non-GAAP operating loss stated as $260 million.

Gross margin was 23%, which includes a 20% negative impact from the $227 million inventory write down. Non-GAAP gross margin was 43%.

Computing solutions revenue (microprocessors) was $873 million, down 37% sequentially and 38% from year-earlier. Server ASPs were up due to Shanghai Opteron introduction.

Graphics revenue was $270 million, down 30% sequentially and down 8% from year earlier. So graphics was a relative bright spot. Average selling price for graphic processors was up in the quarter.

On the bright side, introduction of 45nm quad core Opterons is going well. Dragon Phenom quad core desktop processors have been introduced and should be generally available in Q1 2009.

Cost of sales was $890 million, leaving gross margin of $272 million. R&D expense was $465 million, marketing and general $317 million. Operating loss was $1.27 billion. Interest net negative $82 million. Other income $37 million. Loss from Spansion $20 million. Income tax provision $69 million.

Cash and equivalents ended at $1.096 billion. Accounts receivable plummeted to $320 million. Inventories (post write down) were $656 million. Accounts payable is $631 million, accrued liabilities $785 million, deferred income $50 million, long-term debt $4.7 billion.

Q&A:

Last year Q1 was 15% below Q4. Q1 this year? We can't give any further guidance, there is no visibility.

For Q1 2009 we will report the Foundry Company, AMD as a product company, and the consolidated company.

Q1 margins? A minus is volume down. A positive is our microprocessor line up. Most shipments will be 45 nm in the quarter. Factory utilization will be crummy.

Channel inventory sense? Depends upon the product line. Desktop product component distribution reacted quickly in Q4, so inventories are appropriate. But notebook channel takes a longer time to respond, so it is continuing into this quarter. Graphics gained market share in Q4, our add-in board channel inventory can react faster than notebook graphic chips.

Operating cash flow in Q4? Cash balance was down $245 million. We paid off $95 million in debt, invested $112 million in new capital, so we did have negative cash flow from operations. In Q2 we should generate a little bit of free cash flow.

We will get $700 million for AMD the product company when the transaction closes around February 10, plus $100 million for selling equity shares in Foundry Company.

We believe notebook sales will continue grow faster than desktops in 2009.

Netbook market? Believes distinction between netbook and notebooks will go away, there will be a spectrum of prices with no clear division. We believe netbooks disappoint many consumers. Our Yukon platform allows a light computer with a low price and good performance.

Inventory charge in March quarter? Hope it will go back to normal, but outlook is murkey. We don't expect to have a charge of the magnitude of Q4.

What percentage of Opterons in March quarter will be Shanghai? Less than 50%. In all quad core servers are 75% of Opteron sales. Believes server sales will be stronger relative to desktop and notebook in Q1. Utilization reduction is on 65 nm equipment.

We are manufacturing below our shipment level, so we believe both our inventory and channel inventory will drain in Q1.

Our remarks about where break even will be are not meant to forecast where revenue will be in any quarter.

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