AMD also forecast that flash prices will steadily increase throughout 2001. However, according to a roadmap revealed by company executives, derivatives of the company's flagship Athlon microprocessor may be slower in clock speed than the Pentium 4 from Intel Corp.

Company executives said there was no change to previous analyst guidance, which calls for AMD to record $4.8 billion in 2000 sales and ship 38 million PC microprocessors during the course of the year. During 2001, the Semiconductor Industry Association (SIA) predicts microprocessor sales will grow 22%.

"We see that as a floor for 2001," said Jerry Sanders, chairman and CEO of AMD. Although Sanders is often identified with the company's Athlon microprocessor, executives seemed torn between the lucrative microprocessor market and the booming demand for flash memory. Analyst questions were split evenly between establishing the finer points of AMD's Athlon roadmap and clarifying AMD's plans in the flash market.

While AMD executives spoke confidently of the company's 64-bit roadmap, they took a slightly more defensive stance regarding the future of the Athlon. According to a spokesman from AMD's chief rival, Intel, the company will ship a 2-GHz Pentium 4 in the third quarter of 2001. AMD's own next-generation Athlon cores won't quite reach that clock speed, but executives said the chips' performance will erase any discrepancies.

The Athlon and Duron will give way to the Palomino and Morgan in 2001, improved Athlon cores with 256 Kbytes and 64 Kbytes of on-chip cache, respectively.

Both processors will feature an improved Athlon core with lower power and microarchitectural improvements. But the Palomino will also reach only 1.5 GHz in the second quarter of 2001, about 500 MHz below Intel's plans for the Pentium 4. According to AMD's own tests, that won't matter: a 1.2-GHz Athlon will outperform the Pentium 4 at 1.5 GHz in most benchmarks, according to Dirk Meyer, vice president of engineering at AMD's computational products group.

"We believe we will continue to hold the lead in the gigahertz era," Sanders said.

The Palomino, a high-end part with 256 Kbytes of on-chip cache, will sample at the end of the fourth quarter of 2000 and ship beginning in the first quarter of 2001, Meyer said.

Palomino will also be important as a mobile microprocessor. While the average price of an AMD microprocessor is currently in the mid-$90 range, the company lacks a performance mobile microprocessor, according to Rob Herb, executive vice president and chief sales and marketing officer.

"Palomino will fill that hole in performance mobile," Herb said.

Sanders said he expects ASPs to continue to drop throughout the industry, as the market moves to lower-cost PCs. But he denied rumors of a pricing war, saying AMD is forcing the industry instead to increase performance.

"We're not cutting prices, but we're offering more performance per dollar," he said.

Morgan, a value-class processor with only 64-Kbytes of cache, will sample and ship a quarter later than the Palomino. According to Herb, the company's low-end microprocessor sales have been constrained by the lack of complementary low-end chip sets. However, Via Technologies Inc.'s KM133 chip set should begin shipping in December and alleviate the constraints.

AMD achieved a 17% microprocessor market share during the third quarter, thanks to its efficient manufacturing ramp. During that time, about 80% of the company's Athlon production in Fab 30 in Dresden, Germany, was at 1 GHz and above, according to William Siegle, senior vice president of technology and AMD's manufacturing operations.

"By any measure, the past year was a good year for AMD in the microprocessor business," Meyer said.

AMD also looks forward to bringing the 64-bit microprocessor generation to the desktop. A previously undisclosed version of AMD's 64-bit Hammer chip, Clawhammer, will begin sampling at the end of 2001 for desktops and server appliances and enter production in the first quarter of 2002. Sledgehammer, a 4- and 8-way capable part for servers, will sample in the first quarter of 2002 and ship a quarter later.

More importantly, AMD executives said the 0.13-micron Clawhammer will be smaller than 100 sq. mm, smaller and arguably cheaper than the company's existing Duron low-end PC microprocessor. The Duron is manufactured on a 0.25-micron process, however, about twice as coarse as the 0.13-micron technology.

The performance of the Hammer generation will also be improved by AMD's move to a silicon-on-insulator (SOI) process, which can cut the capacitance of the chip. Through this technique, power can either be cut by 30% or performance increased by the same amount, Meyer said. SOI equipment is currently being installed specifically for the Hammer generation, he said.

Manufacturing will also be a critical role in addressing the flash market, which the SIA projects will grow to $10.5 billion in 2000 and $22.6 billion in 2003. AMD considers those estimates conservative, according to Walid Maghribi, vice president of AMD's memory group.

AMD believes the flash market will total $11 billion in sales in 2000, growing to $25 billion in 2003.

Maghribi said a constant demand for flash in cell phones and other devices will keep flash in a state of shortage through 2002. To date, however, only 30% of AMD's flash sales are to cellular handsets, with nearly as many being sold to networking companies like Cisco Systems Inc. AMD has multiyear supply agreements with all its 23 customers through 2002, and is currently negotiating extensions through 2003.

In June, AMD approved a third fab shell in Japan, through its 50-50 partnership with Fujitsu Ltd. A second flash foundry has been qualified in Japan, and a third plant in Gresham, Ore. Is qualified and ready to begin production in early 2001, Siegel said. In 2001, AMD anticipates flash production volumes reaching 350 million units.

AMD plans to expand its capacity at a 74% rate, well below the 102% demand increase analysts predict. For this reason, "the average selling price of flash will rise every quarter through 2001," Maghribi said.