TBR believes that both Intel and AMD benefited from expanding PC sales throughout 2007, including during 4Q07. The companies' combined unit shipments increased by more than 20 million year-to-year. Yet, we believe that AMD did little to challenge Intel at the high-end of the market in 4Q07 due to the lack of quad-core Opteron and Phenom processors. Consequently, Intel shipped a record number of its Xeon server processors, while at the same time increasing sales of its premium priced quad-core desktop processors; this led to gains in 4Q07 revenue and operating margin for Intel.Still, AMD's Computational Products Group, responsible for its PC and server processors, grew revenue by more than $100 million sequentially to $1.4 billion in 4Q07, while reversing a 3Q07 operating loss with an operating profit of $21 million. TBR believes the group's higher revenue and profitability resulted largely from its shipments of quad-core processors, despite the relatively small total. As a result, we anticipate that continued growth of Phenom and quad-core Opteron shipments will move AMD toward overall profitability. But AMD continues to face challenges in its discrete graphics segment. The segment reported a 4Q07 operating loss that widened to $12 million from a loss of $3 million in 3Q07, despite an increase in 4Q07 revenue to $259 million from $7 million in 3Q07.

We believe that AMD aims to change the competitive landscape in 2008 by quickly increasing its quad-core chip shipment volumes, along with increasing shipments of its latest discrete graphics processors. However, AMD must first deliver a revision of its quad-core Opteron, a version dubbed B3. TBR believes the B3 revision is vital to AMD's ability to improve its 2008 financial performance since it will open the door to higher quad-core shipments. TBR believes AMD's quad core chips will allow the company to improve its competitive position versus Intel. With more competitive chips, AMD can raise additional revenue by commanding higher prices. www.tbri.com.