UPDATE 2-AMD expects key business to be profitable in 2010

* AMD sees core business profitable in 2010

* Says servicing debt remains a top priority

* Expects to be a cash flow "machine"

* Shares rise 3.5 percent to $5.32 (Adds details on margins and growth, comments on Intel, and background; byline)

By Ian Sherr

SUNNYVALE, Calif., Nov 11 (Reuters) - Advanced Micro Devices (AMD.N) said it expects to report profits next year from its chip design business, the backbone of a company trying rebuild market share and better compete with rival Intel Corp. (INTC.O).

AMD executives spent much of a meeting with analysts and investors on Wednesday emphasizing the company's efforts to remake itself as profitable chip designer, while addressing worries over the heavy debt it has accumulated in doing so.

AMD's debt rose to roughly $3.9 billion last year, but dropped to $3.2 billion as of the end of the third quarter, according to Thomson Reuters I/B/E/S.

UBS said in a recent note that AMD has $1.9 billion coming due in 2012.

Chief Financial Officer Thomas Seifert told analysts gathered at the company's headquarters that the debt issue is "as high on our list of priorities as it can be."

Seifert is hoping to keep as much as $1 billion cash on hand in the future, he said, but would use any excess cash to pay down the debt load.

Seifert and other top executives at the meeting sought to paint the picture of AMD as a changed company, one that can compete with Intel Corp (INTC.O), which dominates the chip business.

By spinning off and becoming a minority stakeholder in Globalfoundries, its semiconductor manufacturer, AMD has begun to concentrate on designing microprocessors and graphics cards, which helped the design arm of the company eke out a profit of $2 million in the third quarter.

It said that business should remain profitable in 2010, while margins would run between 40 percent and 45 percent, with the expectation of higher margins down the road.

In October the company reported a net loss of $128 million for the third quarter on revenue of $1.4 billion.

"We're going to turn into a cash flow generating machine," said Chief Executive Dirk Meyer after discussing some of the company's upcoming chip designs. "I can already hear the cash registers starting to ring, which is wonderful."