AMD reported sales of $1.262 billion and net income of $32 million for the quarter ended June 27, 2004. Net income amounted to $0.09 per diluted share. Second quarter sales increased by 96 percent from the second quarter of 2003 and increased by two percent from the first quarter of 2004. In the second quarter of 2003, AMD reported sales of $645 million and a net loss of $140 million, or $0.40 per share. In the first quarter of 2004, AMD reported sales of $1.236 billion and net income of $45 million, or $0.12 per diluted share. "We are pleased to report a ninety-six percent year-over-year increase in sales and solid profitability based on record sales of our leading-edge products," said Robert J. Rivet, AMD's chief financial officer. "We achieved record Spansion Flash memory sales in the second quarter and more than tripled operating income from $14 million to $45 million. Spansion maintained clear leadership in the NOR Flash memory market. In addition, accelerating AMD Opteron and Mobile AMD Athlon 64 processor sales contributed to a double-digit operating margin for our microprocessor business." BUSINESS OVERVIEW Operating income increased to $72 million in the second quarter of 2004 from $61 million in the prior quarter and an operating loss of $123 million in the second quarter of 2003. This result was due to higher sales, strong execution of the company's technology transitions and solid manufacturing performance. Gross margin was 38 percent, equal to the first quarter of 2004. The Memory Group achieved record sales of $673 million in the second quarter, an increase of 220 percent from $211 million in the second quarter of 2003 and seven percent from $628 million in the first quarter of 2004. The consolidation of AMD's and Fujitsu's Flash memory businesses began at the start of the third quarter of 2003. The Memory Group generated operating income of $45 million, up from $14 million in the prior quarter, driven by the successful transition to 110nm technology and benefit recognized from the integration of the two businesses. Flash memory sales grew in all major regions and across both the embedded and wireless segments driven by continued strong demand from tier-one customers. The transition to 110nm process technology for both floating gate and MirrorBit(TM) Flash memory technologies is on schedule. Spansion is on track to double Flash memory bit capacity in 2004. Computation Products Group (CPG) sales were $554 million in the second quarter of 2004. This is an increase of 36 percent from $406 million in the second quarter of 2003 and is a three percent decrease from $571 million in the first quarter of 2004. CPG generated operating income of $58 million in the second quarter, a decrease from $67 million in the first quarter of 2004. Demand for AMD64 processors accelerated significantly during the quarter. Increased AMD Opteron processor sales were largely due to growing enterprise demand and increased shipments to tier-one customers. Additionally, consumer sales of notebook PCs powered by Mobile AMD Athlon 64 processors increased considerably. The transition from 130nm to 90nm technology at Fab 30 is on track, yielding products with excellent power consumption characteristics. AMD began 90nm volume production in May and plans to ship 90nm microprocessors for revenue in the third quarter. Construction of AMD's new 300mm Fab 36 in Dresden is on schedule with production planned in the first half of 2006. ADDITIONAL HIGHLIGHTS OF THE QUARTER -- Spansion launched its second-generation MirrorBit technology, a low voltage, high-speed Flash memory architecture optimized for wireless applications. -- AMD's momentum accelerated in China with Lenovo Group Ltd. introducing new desktop systems based on the award-winning AMD Athlon 64 and AMD Athlon XP processors. -- AMD announced the completed design of its AMD64 dual-core processor. AMD expects to deliver high-performance dual-core products to the x86 server and workstation market in mid-2005 and introduce dual-core solutions for high-end client PCs later that year. -- AMD opened the AMD Japan Engineering Laboratory in Tokyo to support AMD's mobile processor platform design activities. -- Leading enterprise benchmarks, including TPC-C and several SPEC(R) benchmarks, confirmed that the AMD Opteron processor is the world's highest-performing processor for x86 2 and 4-way servers. -- AMD launched the AMD Athlon 64 FX-53 processor and the AMD Athlon 64 processors 3800+, 3700+ and 3500+, offering customers the highest performing x86 processors for the desktop market. -- AMD reinforced its profile in the digital media entertainment industry at Eric Clapton's Crossroads Guitar Festival, where an AMD64 processor-based digital audio workstation was the recording platform of choice. -- AMD introduced a line of low-power, high-performance AMD Geode(TM) embedded x86 processors designed for a wide range of Microsoft(R) Windows(R) XP-based mobile devices. CURRENT OUTLOOK In the third quarter of 2004, AMD expects sales to increase in each of its two major businesses and total sales to increase moderately.