The pro forma net loss for the quarter, which excludes one-time charges, amounted to $97,424,000, which was equivalent to 28 cents per share, matching the consensus estimate of First Call analysts.

The pro forma net loss excludes the effects of restructuring and other special charges amounting to $89.3 million and additional inventory provisions amounting to $6.9 million. These charges were associated with the company's previously-announced plans to close wafer fabrication facilities and reduce other manufacturing activities and administrative support that primarily serve AMD foundry service operations.

The pro forma net loss also excludes the effects of a charge amounting to $22 million for impaired investments. Total pro forma adjustments, net of tax credits, amounted to $89.5 million.

The total net loss under GAAP (generally accepted accounting principles) for the third quarter of 2001 was $186,929,000, which amounted to 54 cents per share on 345,044,000 shares outstanding. In the second quarter of 2001, AMD reported net income of $17,352,000, which amounted to 5 cents per diluted share.

Memory Group sales in the third quarter of 2001 at $210 million declined by 34% from the second quarter of 2001, reflecting continuing weakness in the communication sector and excess inventories of flash memory devices at major customers.

The company reported record unit sales of AMD Athlon and Duron processors in the quarter. Total PC processor unit sales for the third quarter of 2001, at more than 7.7 million units, remained at the record level of the immediate-prior quarter. In the face of very aggressive competition from Intel, average selling prices (ASPs) for PC processors declined by 20% sequentially.

"AMD held market share in the 22 percent range in a very weak PC market made more difficult by our principal competitor's efforts to halt our forward momentum," said W. J. Sanders III, chairman and chief executive officer, in a released statement.

"Those efforts have failed as the performance deficiencies of computers based on Intel's Pentium 4 processors have become increasingly evident. Nevertheless, drastic price cuts and large, cash-backed marketing programs from Intel had the effect of driving down ASPs on PC processors in the market segments where we compete directly."

For the current quarter, demand for flash memory devices from new customers is expected to offset continuing weakness in demand from customers in the communications sector, where inventories continue to exceed desired levels. The company projects that Memory Group sales in the fourth quarter will range from unchanged to growth of 10% over the level of the third quarter of 2001.

The company said it expects that the normal seasonality that was to have benefited the PC market in the fourth quarter will be muted at best in light of the impact of global economic uncertainty on consumer spending.

Unit sales of PCs are expected to grow only modestly in the fourth quarter of 2001 from the levels of the third quarter.

In the current quarter, the company said it again expects to achieve record unit volume sales of Athlon and Duron processors, with revenues ranging from the level of the third quarter of 2001 to as much as 10% growth sequentially.

If current conditions prevail and as revenues from the company's other IC products and foundry services decline, the company expects that overall revenues will range from flat to high single-digit percentage growth in the fourth quarter.

Revenues in this range would be insufficient to offset the current level of expenses, and therefore the company currently expects to report an operating loss in the fourth quarter.

AMD reported a 23% gross margin in the third quarter, down from 37% for the prior quarter.

During a conference call with financial analysts, Sanders said the overwhelming factor in the profit margin decline was "ASP...ASP...ASP," blaming it on Intel Corp.'s severe Pentium 4 price cutting. However, he believed despite "extraordinary price cutting by our chief competitor," AMD would be able to improve its gross margin in future quarters by higher yields, increased sales of higher profit notebook processors, and cost reductions that are continuing on target.

Sanders said as AMD ramps its 0.13-micron processing in Fab 30 at Dresden, Germany, starting this December, it will have far lower chip costs than Intel and can beat Intel in a price war and still be profitable.

Even though Intel itself is even now ahead of AMD in moving to 0.13-micron processing, the AMD CEO said his firm's leading-edge Athlon die at 80mm square is 35% smaller than Intel's upcoming Northwood Pentium 4 die built on a similar 0.13-micron process. "That gives us 315 candidate die per wafer compared to (Intel's) 180 Northwood candidate die per wafer. We'll have a real cost edge," which will boost operating profit, he asserted.

Hector Ruiz, AMD president, said in some cases AMD refused to follow Intel's severe price cutting, especially on flash memory chips. "We walked away from some orders for very low density (flash) at prices that wouldn't even cover our variable cost."

In the battle of PC processor share, Sanders said that at most the company lost 0.7% share to Intel. "That equals only a few hundred thousand units," which he said was not significant.

Ruiz also said margins should increase after AMD completes the phaseout of aging Fabs 15 and 17 in Austin, Tex. now used as foundries. He said after Q2 '02 AMD "will be out of the foundry business."

He said AMD's processor market share should increase this quarter as the firm continues to gain penetration of the notebook processor space. He reiterated that "AMD is on track to reach a 50% share of the U.S. retail market for notebook processors by the end of December."

Ruiz said he was especially delighted with AMD's growing sales of higher-profit notebook processors, which would also improve gross margins in coming quarters. However, he said mobile processors comprise only 5% of AMD PC chip sales, "so we have plenty of room for growth."

In notebooks, Sanders said Intel's "aggressive campaign has kept Transmeta Corp. out of the marketplace," but had not stopped AMD. "Intel is our only competitor in notebook processors," he added.

Sanders said AMD is reducing its total capital spending this to slightly less than the originally projected $900 million. R&D spending in 2001 remains on target at $660 million.

Capex will still allow the Dresden Fab 30 to transition completely to 0.13-micron processing by the end of 2002. At that level, Dresden would have capacity to make 50 million processor chips a year, Sanders said. "This would be enough to let AMD reach its goal of 30% market share," he added. After that AMD hopes to expand with a new 300mm wafer fab in 2004. "We're committed to this," he proclaimed.

The chip firm also spelled out its projected new supply chain management initiative based on SAP software to be fully implemented within two years. Ruiz said a special 200-person team is working under a cadre of fulltime executives covering every function of the firm's operation. "We are working with our key customers to provide some unique and powerful supply chain support."

Net sales for the first nine months of 2001 were $2.9 billion compared with $3.5 billion for the first nine months of 2000, a decline of 15%.

Pro forma net income for the first nine months of 2001 amounted to $44,766,000, or 13 cents per diluted share. Pro forma net income for the first nine months of 2000 amounted to $615,792,000, or $1.81 per diluted share.

The total net loss under GAAP for the first nine months of 2001 was $44,739,000, or 14 cents per share. Net income for the first nine months of 2000 was $805,058,000, or $2.36 per diluted share.