AMD bets on flash memory chips

SAN FRANCISCO: Advanced Micro Devices Inc. expects sales of its flash memory semiconductors and microprocessors in 2005 to outpace the growth of those two overall markets, the company's chief financial officer said.

"We're well on our way to a transformed business model," AMD CFO, Bob Rivet said at the company's financial analyst meeting, which was broadcast over the Internet.

Until the introduction of AMD's Opteron processor in April 2003, Sunnyvale, California-based AMD was seen largely as an also-ran to its far larger rival, Intel Corp., competing by selling its chips at a lower cost than Intel. Now, AMD competes against Intel on the basis of technology.

"We used to be a price-based alternative," said Henri Richard, head of worldwide sales and marketing for AMD, in his presentation to analysts at AMD's headquarters, adding that the company has never been better positioned.

"On profitability, management noted that (in) five of the last six quarters (average selling prices of its processors) increased, and that the company has improved its branding and positioning for maintenance or expansion of ASPs (average selling price)," wrote Lehman Brothers analyst, Tim Luke in a note to clients issued just as the meeting was coming to a close.

Rivet told analysts that AMD's capital spending will be about $1.5 billion in 2005, flat with 2004, noting that about $650 million of that will be on its flash memory business, a joint venture called Spansion that is 60-percent-owned by AMD and 40-percent-owned by Fujitsu Ltd.

Chief Executive, Hector Ruiz also said that he expects an upgrade cycle in the information technology (IT) sector in 2005 and 2006, driven by 64-bit computing and improved computing security. He predicted that units sales of microprocessors would rise 10 percent in 2005 from 2004.

"An IT upgrade in the next couple of years is inevitable," Ruiz said. "I just see it right around the corner."

Rivet said that the average selling price of its chips in 2005 will rise from 2004, because "we're going to ship more AMD 64" processors.

"While clearly risks remain given fierce competitive pressures we expect solid momentum over the next several quarters," Luke wrote.

Shares of AMD rose $2.43, or 13 percent, to close at $21.02 on the New York Stock Exchange on Friday, a day after Dell Inc. CEO Kevin Rollins said the company is considering using AMD chips for some future server products. Friday's closing price was the stock's highest since July 13, 2001.

AMD shares have risen 41 percent so far this year, compared with a 26 percent decline in shares of Intel.

Dell, the world's largest PC maker, uses only Intel processors in its notebooks, desktop PCs and servers. Rollins also emphasized that Dell had not formal plans as yet to embrace AMD.