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EXHIBIT 3

Management's Discussion and Analysis

#### ABOUT FORWARD-LOOKING STATEMENTS

Forward-looking statements look into the future and provide an opinion as to the effect of certain events and trends on the business. Forward-looking statements may include words such as plans, intends, anticipates, should, estimates, expects, believes, indicates, targeting, suggests and similar expressions.

This Annual Report and Managements Discussion and Analysis (MD&A),
and in particular the outlook sections of this MD&A, contain forward-looking statements about ATIs objectives, strategies, financial condition and results. These forwardlooking statements are based on current expectations and entail various risks and uncertainties.

It must be noted that:

| |  |  | Forward-looking
statements describe our expectations on the day they are made. For the MD&A, it is
November 26, 2004.
| | - |  | ---------------------------------------------------------------------------------------------------------------------

| |  |  | Our
actual results may materially differ from our expectations if known and unknown risks or
uncertainties affect our business, or if our estimates or assumptions prove inaccurate.
Therefore we cannot provide any assurance that forward- looking statements will
materialize.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | We
assume no obligation to update or revise any forward-looking statement, whether as a
result of new information, future events or any other reason.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

Risks that could cause our actual results to materially differ from our current expectations are outlined in the Risks and Uncertainties section of this MD&A.

This MD&A comments on ATIs operations, performance and financial condition for the two fiscal years ended August 31, 2004 and 2003. The MD&A should be read in conjunction with ATIs 2004 consolidated financial statements and accompanying notes beginning on page 29 of this Annual Report. All tabular amounts are expressed in thousands of U.S. dollars except per share amounts.

Additional information regarding ATI and our business is contained in our filings with securities regulatory authorities, including our Annual Information Form, and can be accessed at www.sedar.com or on our company website at www.ati.com.

In this MD&A, ATI,
we, usand ourrefer to ATI Technologies Inc. and its subsidiaries.

The MD&A is presented in four sections:

About Our Businessdescribes our business, strategy and outlook.

Financial Results Analysisprovides a detailed review of our financial performance for the past three years. It focuses on operating results as well as liquidity and capital resources.

Risks and Uncertaintiesexamine uncertainties and challenges that could affect our business.

Our Accounting Policiesdescribe our critical accounting policies and the key estimates and assumptions that management has made in the preparation of our financial statements. It also provides a description of changes in accounting standards used to prepare our financial statements.

About Our Business

ATI Technologies Inc. is a world leader in the design and manufacture of innovative 3D graphics and digital media silicon solutions. An industry pioneer since 1985, ATI is the worlds foremost visual processor unit provider and is dedicated to delivering leading-edge performance solutions for the full range of PC desktop and notebook platforms, workstation, set-top and digital television, game console and handheld markets.

ATI had revenues of approximately $2 billion in 2004 and has more than 2,700 employees in the Americas, Europe and Asia. ATI common shares trade on NASDAQ (ATYT) and the Toronto Stock Exchange (ATY).

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MANAGEMENT'S DISCUSSION AND ANALYSIS (CONT.)

ATI TERMS EXPLAINED

We use certain acronyms to identify some of the main product categories in our business.

VPUs

Visual processing units (VPUs) are semiconductor chips that increase the speed and improve the image quality of complex images that can be displayed on a computer monitor. They also enable the support of enhanced screen resolutions and improve color definition.

VPUs off-load the burden of visual processing from the computers microprocessor or central processing unit (CPU). In this way the dedicated VPU and CPU work in tandem to increase overall speed and performance of the PC.

IGPs

Integrated graphics processors (IGPs) are semiconductor chips that combine the graphics processor with one or more other core logic functions such as memory, input/output and communications controllers on one chip.

Visual Processing Units for Personal Computers (PCs)

ATI designs, engineers, manufactures and markets VPU, and IGP products to original equipment manufacturers (OEMs) and system integrators (SIs) who build them into their PCs, original design manufacturers (ODMs) and add-in-board manufacturers (AIBs) who add them to their PC motherboard products or who use them in their graphic board products, as well as retailers.

Desktop

Our discrete desktop VPUs address desktop PC markets where customers expect high levels of performance, speed and a compelling visual experience. We deliver an array of features and performance value propositions for all four segments of the PC market: value, mainstream, performance and enthusiast. We also design and build VPU solutions for the advanced workstation and home media markets.

Our integrated desktop IGP addresses the value segment of the PC market, bringing speed and an excellent visual experience to the sub-$800 PC market.

Notebook

Our notebook VPUs address the portable or laptop computer segment. In this category, speed, low power consumption and visual performance are the uppermost considerations of our customers. We focus on designing notebook VPUs that meet and exceed these expectations in value, mainstream and enthusiast categories. We also build notebook VPU solutions for the workstation and home media markets.

Our integrated notebook IGPs target the value category of the portable or laptop computer segment. Our products combine excellent graphic performance and low power consumption at a value price-point.

Visual Processing Products for Consumer Electronics

Many consumer electronics today rely on some form of digital processor to increase functionality, improve reliability, decrease size and lower costs.

ATI has been working for several years to leverage our core technology, visual processing expertise and power management know-how in certain consumer markets. We have targeted three end user markets: handheld devices, including color mobile phones; digital television, including set-top boxes; and game consoles.

Color mobile phones and other handheld devices

Demand for multimedia features in color mobile phones and other handheld devices is driving requirements for more advanced visual processors. Higher resolution panels, higher performing embedded processors as well as increased internal and removable storage are contributing to the revolution in handheld and mobile communication devices.

Our IMAGEONTMproduct line delivers leading visual processing along with power saving technology and a high level of integration to this market.

Digital television including set-top boxes

Digital television is another key consumer electronics market for ATI. The U.S. Federal Communications Commission has mandated that all televisions sold in the U.S. be equipped with a digital tuner by 2007. Worldwide, the transition to digital delivery of television signals is well underway.

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We are leveraging our core technology in visual processors and multimedia by designing and manufacturing component-level visual and signal processing technologies for the digital television and set-top box markets. Our XILLEONTMand THEATERTMproduct lines are cost-effective and highly integrated solutions for this market.

Game consoles

We leverage our core visual processing technology in the game console market. Nintendos current game console GAMECUBETMis powered by ATIs Flipper graphics processor. We have also entered into technology development agreements with game console manufacturers Nintendo Co., Ltd. for future products and Microsoft Corp. for future Xbox®products and services.

Business Strategy and 2004 Progress and Achievements

Our success to date and our future prosperity are driven by the four pillars of our business strategysecuring and maintaining product and technology leadership, establishing a franchise in the IGP market, building momentum and scale in consumer digital electronics markets, and continuously improving our efficiency and our operational and financial performance.

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MANAGEMENT'S DISCUSSION AND ANALYSIS (CONT.)

BUSINESS OUTLOOK FOR
FISCAL 2005

In fiscal 2005, we expect
to benefit from low double digit growth in the PC market. In consumer electronics, further
expansion of the consumer market for enhanced feature color cellphones and DTV is expected to
provide us with growth opportunities in fiscal 2005.

Based on these trends, we anticipate
stronger overall revenue and earnings performance in fiscal 2005 than was experienced in 2004.

Financial Results
Analysis

This section discusses the
financial results of ATI Technologies Inc. Our financial results have been and will continue to be
subject to quarterly and other fluctuations. For a discussion of factors affecting our operating
results, please refer to Risks and Uncertainties on page 23.

OPERATING
RESULTS

Fourth Quarter of Fiscal
2004

We achieved revenues of $572.2
million in the fourth quarter of fiscal 2004 which represents a 50.3% increase over revenues of $380.7
million in the same period in fiscal 2003. Revenue gains occurred in all of our main business lines;
desktop discrete chip revenues were up approximately 40.0% as a result of PCI Express business success
with OEMs; total integrated and discrete notebook chip revenues were up almost 20.0% as a result of market
 growth; and handset chip revenues more than doubled.

Gross margin declined 1.8% in the fourth
quarter to 33.8% from 35.6% in the same period one year ago. This decline was largely a result of initial
PCI Express production costs. Overall margin decline in our PC product line was slightly offset by an
increase in revenues from our consumer products that typically have margins that are higher than our
corporate average.

Fourth quarter selling and marketing
expenses, administrative expenses and research and development expenses increased by
10.6%, 11.3% and 25.8%, respectively from the same period one year ago. Increases in our
operating expenses were due to increased staff, greater marketing and advertising
activities, higher incentive-based compensation and increased prototyping costs primarily
in the desktop, integrated and notebook business units.

We incurred other charges of $0.2
million in the fourth quarter compared to $10.4 million in the same period one year ago.

Net income in the fourth quarter
almost tripled to $61.2 million from $22.3 million in the same quarter last year as a
result of the significant increase in sales. Our cash position increased by $40.9
milliion to $548.9 million as of August 31, 2004 relative to May 31, 2004, principally as
a result of our net income and cash proceeds on exercise of employee stock options net of
increases in our working capital in the quarter.

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# Fiscal Year 2004

The following table compares
operating results for our three most recent fiscal years. Each line item is also
expressed as a percentage of revenues.

Comparison of Operating Results

REVENUES

Fiscal 2004 vs. Fiscal 2003

In
Fiscal 2004, ATIs revenues grew by 44.1%.

ATIs 2004 revenues increased
by $611.4 million, or 44.1%, to approximately $2.0 billion, compared with approximately
$1.4 billion in 2003. The revenue growth was a result of sales increases in all our main
business lines.

Desktop revenue increased by more
than 30.0% as the number of units sold grew by nearly 50.0%. Desktop revenues represented
a little less than 50.0% of our overall business in 2004 versus about 55.0% in 2003.
Overall business grew due to a more competitive product stack, particularly in the
mainstream and value segments of the desktop market.

Much of the desktop growth was a
result of greater penetration in the add-in-board (AIB) channel where both our units
shipped and revenue almost doubled. AIB growth resulted primarily from partnerships with
top ODMs and AIBs, as well as from continued expansion of both our geographic reach and
partner relationships.

Our desktop OEM revenues slightly
decreased in 2004 by about 4.0%, while units shipped were up over 10.0%. This shift was a
result of our continued transition from providing board-level products to our customers
to providing chips.

The increase in notebook revenues
was driven by growth in the notebook market overall, as well as improvement in ATIs
notebook discrete market share. This was slightly offset by a decline in our share of the
growing notebook IGP market.

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MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONT.)

About 35.0% of revenues in 2004 were
generated by our notebook products, compared with approximately 40.0% in 2003. In 2004,
about three-quarters of total notebook revenues were discrete products while the
remainder was integrated. Notebook revenues continued to grow rapidly in fiscal 2004.
However, notebooks share of ATIs total revenue declined because of the
extraordinarily high growth in consumer revenues.

Slightly less than 10.0% of our
total 2004 product revenues were generated by consumer products. Our handheld products
represented approximately two-thirds of our consumer product revenues for 2004, with the
balance being DTV products.

Royalties from our Nintendo business
and other licensing income, as well as non-recurring engineering (NRE)
revenues associated with our development contracts continued to represent less than 3.0%
of revenues in 2004, and in absolute dollars were higher in 2004 relative to 2003.

Both our royalty income from
Nintendo and other licensing incomes, as well as NRE, are reported under Other in
our segmented reporting. Please see note 17 to our consolidated financial statements for
further information on our segmented reporting.

Following our transition beginning
in 2002 from primarily a board-level manufacturer to a component-level manufacturer, in
2004 over 95.0% of our PC graphics products were shipped as chips, representing about
80.0% of our consolidated revenues for the year.

In 2004, one customer accounted for
10.6% of total revenues. In 2003, three customers accounted for 16.2%, 13.0% and 10.6%
respectively of total revenues. Our top ten customers accounted for 61.9% of revenues in
2004 compared with 69.6% in 2003.

Fiscal 2003 vs. Fiscal 2002

Our 2003 revenues grew 36.4% over
2002 to $1.4 billion, an increase of $369.5 million, primarily as a result of our strong
entry into the notebook IGP market, growing demand for our high performance desktop
products, and overall growth in the notebook market.

The proportion of our overall
revenues derived from various products was as follows: desktop discreteabout 55.0%
in 2003 vs. over 60.0% in 2002; notebookapproximately 40.0% in 2003 vs. about one
third in 2002; and royalties and licensing incomeless than 3.0% in both 2003 and
2002.

In 2003, we substantially completed
our transition from primarily a board-level manufacturer to a component-level
manufacturer. In 2003, more than 90.0% of our units shipped as chips, representing about
70.0% of revenues. This transition opened up new channels and markets for us,
specifically in the Asia-Pacific region, further contributing to revenue growth.

In 2003, three customers accounted
for 16.2%, 13.0% and 10.6% respectively of total revenues. In 2002, only one customer
represented over 10.0% of our sales, at 21.2%. Our top ten customers accounted for 69.6%
of revenues in 2003 compared with 71.4% in 2002.

GROSS
MARGIN

Fiscal 2004 vs. Fiscal 2003

Desktop
and consumer products drove gross margin improvement.

Margin improvement in 2004 was
driven by increases in margin levels on PC products as well as by the greater share of
revenues resulting from higher margin consumer electronics products.

Gross margins for fiscal 2004 were
34.9% which was 3.6% higher than the 31.3% achieved in fiscal 2003.

The increased competitiveness of our
desktop products along with less aggressive ASP (average selling price) reductions drove
the improvement in desktop discrete PC margins. As ATI continued to increase the share of
revenues derived from the relatively higher margin consumer business, the change in
revenue mix also contributed to overall margin improvement. This increase was slightly
offset by the decline in our PC discrete product margins in the fourth quarter due to the
introduction of ATIs PCI Express products.

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Fiscal 2003 vs. Fiscal 2002

Gross margin in 2003 of 31.3% was
down 1.5% from 32.8% in 2002. The decline was largely a result of inventory write-downs
and a delay in implementing cost reductions until after the first quarter. Our gross
margin climbed steadily in the subsequent three quarters, reflecting the strength of our
high-end and consumer products, and exceeded 35.0% in the fourth quarter.

EXPENSES

Operating Expenses

Fiscal 2004 vs. Fiscal 2003

Strength
of Canadian dollar impacts expenses.

ATIs headquarters are in
Markham, Ontario, Canada. Our overhead and staffing costs were approximately Cdn. $220.0
to $230.0 million in fiscal 2004 compared with Cdn. $160.0 to $170.0 million in fiscal
2003. The rise in the value of Canadian dollar relative to the U.S. dollar from an
average rate of 67 cents in fiscal 2003 to an average rate of 75 cents in fiscal 2004,
had an approximate $18.0 million negative impact on our operating expenses in 2004, as
ATI reports and measures its results in U.S. dollars. Continued strength in the Canadian
dollar relative to the U.S. dollar will result in upward pressure on operating expenses
in fiscal 2005.

In accordance with Canadian
generally accepted accounting principles, beginning with the first quarter of fiscal
2005, ATI will expense compensation costs associated with stock options granted to
employees after September 1, 2002.

ATI sometimes enters into forward
foreign exchange contracts (Forwards) to hedge a portion of its foreign
currency exposure on expenses incurred for its Canadian operations. The Forwards obligate
ATI to sell U.S. dollars for Canadian dollars in the future at predetermined exchange
rates and are matched with anticipated future operating expenses in Canada. The Forwards
do not subject ATI to risk from exchange rate movements because gains and losses on such
contracts offset increases and decreases in Canadian expenses being hedged. The
counterparties to the Forwards are multinational commercial banks and, therefore, the
credit risk of counterparty non-performance is low.

During the fourth quarter of fiscal
2004, ATI purchased Forwards to buy $35.0 million Canadian dollars over the next three
months at an average exchange rate of 73 cents. All of the Forwards have become favorable
to us since their inception and had a fair value of $1.3 million at August 31, 2004.

Fiscal 2003 vs. Fiscal 2002

The rise in the value of the
Canadian dollar from an average rate of 64 cents in fiscal 2002 to an average rate of 67
cents in fiscal 2003 caused our operating expenses to increase by $5.6 million in 2003
compared with 2002. This increase represented a little less than half of the $13.1
million increase relative to the prior year.

Selling and Marketing Expenses

Fiscal 2004 vs. Fiscal 2003

Selling and
marketing expenses declined as a percentage of revenue.

Our
selling and marketing expenses in 2004 increased $25.9 million, or 26.7% to $122.8
million.

As
a percentage of revenues, our 2004 selling and marketing expenses declined to 6.2% from
7.0% in 2003.

Selling and marketing expenses
include salaries, commissions and bonuses earned by sales and marketing personnel, direct
sales costs, promotional and advertising costs, and travel and entertainment expenses.

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MANAGEMENT's DICUSSION AND ANALYSIS
(CONT.)

The largest contributor to the
increase in sales and marketing expenses was staffing costs, including additional sales
and marketing personnel in North America and in the Asia-Pacific region, and higher
incentive-based compensation that resulted from higher sales.

Our purchase of certain assets of
AMI Technologies Corp., one of our third-party sales and distribution partners in
Asia-Pacific, in early 2004 helped to reduce the growth in expenses associated with sales
into this region in fiscal 2004. Although fixed selling costs increased in 2004 due to
the acquisition, the decrease in commissions paid more than offset the increase.

Increased advertising expenditures
were also a major contributor to the year over year increase. Brand marketing and product
awareness are critical to the success of our business. Product launches, game developer
programs and co-marketing programs with our OEM, AIB and retailing partners help to
create demand for our products. In 2004, we increased our investment in brand marketing
and product awareness compared to 2003.

Fiscal 2003 vs. Fiscal 2002

Our 2003 selling and marketing
expenses increased by 24.4% from 2002 to $96.9 million; however, they declined as a
percentage of revenues to 7.0% in 2003 from 7.7% in 2002. In 2003, we increased our
investment in brand marketing and product awareness significantly compared to 2002.

Research and Development Expenses

Fiscal 2004 vs. Fiscal 2003

R&D
investments enabled PCI Express and major consumer electronics design wins.

Our 2004 R&D expenses increased
by 26.7% to $269.9 million; however, they declined as a percentage of revenues to 13.5%
from 15.4% in 2003.

R&D expenses include engineering
salaries, costs of development tools and software, component and board prototype costs,
consulting fees, licensed technology fees and patent filing fees.

Investment in R&D is a key part
of our strategy to maintain product and technology leadership. R&D is essential to
our continued achievement of our strategic objectives of product and technology
leadership, establishing a strong franchise in the IGP market and securing market
leadership in consumer digital electronics. Investment in R&D effectively drives ATIs
future revenue growth. We will continue to invest in R&D in support of these
strategic objectives.

In
2004, our R&D expenses increased as a result of a number of factors:

| |  |  | Increased
staffing costs, particularly in our consumer products business to support our growing
color mobile phone business and the expansion of our software engineering competencies,
as well as higher incentive-based compensation;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Increased
investments in our desktop products business, including an additional $15.0 million in
prototyping expenses that enabled us to secure top-tier OEM design wins during the early
stages of the PCI Express transition;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The
impact of a stronger Canadian dollar; and
| | - |  | ---------------------------------------------

| |  |  | Higher
licensing fees, which include increases in CAD tool expenditures to support the
development of new products.
| | - |  | -------------------------------------------------------------------------------------------------------------------

Fiscal 2003 vs. Fiscal 2002

Our 2003 R&D expenses increased
by 29.4% from 2002 to $213.0 million. However, they declined as a percentage of revenues
to 15.4% in 2003 from 16.2% in 2002.

R&D expenses rose during 2003 as
a result of increased staffing; the cost of technology required to support our
increasingly complex and broader product line, such as color mobile phone and DTV
products; prototyping expenses for our desktop products business; expanding our hardware
and software engineering capabilities; and the impact of foreign exchange.

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Administrative Expenses

Fiscal 2004 vs. Fiscal 2003

Administrative expenses increase to support growth.

Our administrative expenses
increased 24.0% to $48.9 million in 2004. As a percentage of revenues, administrative
expenses in 2004 declined to 2.4% from 2.8% in 2003.

Administrative expenses consist of
salaries and expenses of the corporate infrastructure groups, including the operations,
human resources, finance, legal and information technology departments.

The increase in administrative
expenses in 2004 was primarily a result of increased staffing to support our growing
business, higher incentive-based compensation, and the stronger Canadian dollar. Most of
our administrative expenditures are denominated in Canadian dollars.

Fiscal 2003 vs. Fiscal 2002

Our 2003 administrative expenses
increased by 10.5% from 2002 to $39.4 million. However they declined as a percentage of
revenues to 2.8% in 2003 from 3.5% in 2002.

The increase in administrative
expenses compared to the prior year was a result of increased staffing to support
investments in R&D and marketing, and foreign exchange impact.

Amortization and Write-down of
Intangible Assets and Goodwill

Fiscal 2004 vs. Fiscal 2003

Our
total amortization expense declined by $4.7 million, or 43.2%, to $6.1 million in 2004.

The decrease is primarily the result
of the completion of the amortization of intangibles related to the acquisition of
NxtWave Communications Inc.

Fiscal 2003 vs. Fiscal 2002

Our total amortization expense fell
by $86.7 million, or 89.0%, to $10.8 million in 2003 from $97.5 million in 2002. This
decrease was the result of discontinuing amortization of goodwill in response to new
accounting standards.

During fiscal 2002, we conducted a
comprehensive review of the carrying values of core technology and goodwill arising from
two acquisitions. We concluded that there was a permanent impairment in these values and
wrote off $15.4 million related to two acquisitions.

Other Charges Fiscal

2004 vs. Fiscal 2003

We recorded a recovery of $0.3
million in respect of other charges in 2004. The amount resulted from
recoveries in excess of the estimated amount from the restructuring of our European
operations and the reversal of a lease exit charge incurred in 2003, less a charge to
address issues related to an investigation by the Ontario Securities Commission (OSC).
Please see note 16 to consolidated financial statements for further information.

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MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONT.)

Fiscal 2003 vs. Fiscal 2002

In 2003 we recorded other charges
totaling $28.7 million to settle litigation, address issues related to an investigation
by the OSC, reorganize our business in Europe, and reflect lease exit charges. These
charges are unusual in nature in that they are expected to be non-recurring and are
described in note 16 to the consolidated financial statements.

Interest
and Other Income

Interest Expense

Fiscal 2004 vs. Fiscal 2003

Our interest expense increased to
$2.1 million in 2004 from $1.9 million last year mostly as a result of the foreign
exchange impact of the rise of the Canadian dollar versus the U.S. dollar.

Our interest expense relates
primarily to our capital lease obligation and mortgage for our building facility located
in Markham, Ontario, a joint venture in which we hold a 50.0% interest.

Fiscal 2003 vs. Fiscal 2002

Our 2003 interest expense increased
to $1.9 million from $0.7 million in 2002. In 2002, interest expense also included our
proportionate share of the interest expense related to the interim construction financing
for our 50.0% owned Markham building facility.

Income
Taxes

Fiscal 2004 vs. Fiscal 2003 vs.
Fiscal 2002

Income
tax expense increased to $45.8 million in 2004 from $11.7 million in 2003 due to our
higher net income in 2004.

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ATIs operating tax rate, which
excludes the impact of the Amortization and write down of Intangible Assets and Goodwill
related to acquisitions, and the effect of the gain (loss) on investments and other
special charges, was 18.0% in 2004, 18.9% in 2003 and 18.0% in 2002. ATIs tax rate
is affected by the amount of net income earned in its various operating jurisdictions.
See note 13 to the consolidated financial statements.

Net Income (Loss)

Fiscal 2004 vs. Fiscal 2003

Net income
up almost 6 times over 2003.

Net income in 2004 was $204.8
million, an increase of $169.6 million from $35.2 million in 2003. The increase in net
income was a result of the significant increase in sales and continuing strong margins
throughout 2004.

Fiscal 2003 vs. Fiscal 2002

Net income rose $84.3 million in
2003 to $35.2 million from a net loss of $49.1 million in 2002 as a result of several
factors. Revenues and gross margin increased in 2003 while amortization expenses
decreased significantly due to new accounting policies related to goodwill. Increases in
operating expenses across all other functional areas in 2003 partially offset these
improvements.

LIQUIDITY
AND CAPITAL RESOURCES

This
section explains how we manage our cash and capital resources to carry out our strategy
and deliver financial results.

In  2004, our primary
objectives in managing liquidity and cash flows were:

| |  |  | Ensuring
financial flexibility to support growth and entry into new markets
| | - |  | ---------------------------------------------------------------------------

| |  |  | Improving
inventory management and targeting inventory at about 60 days usage
| | - |  | ------------------------------------------------------------------------------

We
generated positive cash flows from operations from our net income and improvements in
working capital in the period.

Cash
Position

The
table below is a summary of our cash inflows and outflows for each of the past three
years:

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MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONT.)

Fiscal 2004 vs. Fiscal 2003

Our cash position (cash, cash
equivalents and short-term investments) increased 56.5% to $548.9 million in 2004 from
$350.7 million in fiscal 2003. Our cash position increased mainly as a result of
increased earnings throughout the fiscal year.

We have access to $43.0 million in
credit facilities at August 31, 2004 compared to $25.4 million at August 31, 2003. There
are no amounts outstanding on these facilities as of the date of this MD&A.

Fiscal 2003 vs. Fiscal 2002

Our cash position increased 48.0% to
$350.7 million in fiscal 2003 from $236.9 million in 2002 as a result of improved
revenues and operational performance as well as $37.5 million of deferred revenue that
was recorded for development agreements with Microsoft Corp. and Nintendo Co., Ltd.

We had access to $25.4 million in
credit facilities at August 31, 2003 compared to $101.0 million at August 31, 2002.

Commitments

As at August 31, 2004, we are
committed to the following minimum payments related to office premises, license and
royalty agreements, building under capital lease payments and mortgage payments:

We believe that cash flows from
operating activities, together with our cash position and borrowings available under our
credit facilities, will be sufficient to fund currently anticipated working capital,
planned operating and capital expenditures and debt service requirements during fiscal
2005.

OPERATING
ACTIVITIESWORKING CAPITAL

Accounts Receivable

Fiscal 2004 vs. Fiscal 2003

Our accounts receivable increased by
55.9% at August 31, 2004 compared to the prior year-end, due largely to increased sales
throughout the year. Our accounts receivable are within our target range for current
sales levels.

At August 31, 2004, 94.8% of
accounts receivable were less than 60 days outstanding, compared with 93.3% at August 31,
2003. We have Export Development Corporation insurance covering 87.2% of our total
accounts receivable at August 31, 2004 compared to 89.8% last year. Days sales in
accounts receivable decreased to 50 days in 2004 compared to 53 days in 2003. At August
31, 2004, none of our customers accounted for 10.0% or more of our accounts receivable
balance. At August 31, 2003, one customer accounted for 18.0% of our accounts receivable
balance.

Fiscal 2003 vs. Fiscal 2002

Our accounts receivable increased by
66.2% at August 31, 2003 compared to fiscal 2002 year-end, due largely to increased
product sales in the fourth quarter.

At August 31, 2003, 93.3% of
accounts receivable were less than 60 days outstanding, compared with 92.3% at August 31,
2002. Export Development Corporation insurance covered 89.8% of our total accounts
receivable at August 31, 2003 compared to 81.2% at the end of fiscal 2002. Days sales in
accounts receivable increased to 53 days in 2003 compared to 50 days in 2002.

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Inventories

Fiscal 2004 vs. Fiscal 2003

Inventories on hand at August 31,
2004 increased 44.4% to $254.9 million from $176.5 million in fiscal 2003. The increase
relative to August 31, 2003 is a direct result of our substantially increased sales.

Inventory levels in 2004 were in
line with our target of 60 days. It is necessary for ATI to maintain some level of
inventory to meet customer requirements.

Fiscal 2003 vs. Fiscal 2002

Inventories on hand decreased by
8.1% to $176.5 million at the end of 2003 compared to inventories at the end of fiscal
2002. Inventory levels in 2003 were in line with our target of 60 days.

In 2003, we continued to implement
an inventory management program to reduce inventories of raw materials, work in progress
and finished goods.

Accounts Payable and Accrued
Liabilities

Fiscal 2004 vs. Fiscal 2003

Accounts payable increased 43.7% to
$274.8 million in 2004 from $191.2 million in 2003 as a result of increased inventory
purchases required to support our 44.1% increase in sales and the timing of payments to
our suppliers. Accounts payable are within our target range for current sales levels.

Accrued liabilities increased 45.7%
to $199.1 million in 2004 compared to $136.7 million in 2003. The increase is largely a
result of the timing of payments related to sales rebates and price protection, which are
directly related to sales levels.

Fiscal 2003 vs. Fiscal 2002

Accounts payable increased to $191.2
million in 2003 from $172.1 million in 2002 as a result of increased inventory purchases
for new product lines and the timing of payments to suppliers.

Accrued liabilities increased to
$136.7 million in 2003 compared to $49.4 million in 2002, largely as a result of the
timing of payments related to sales rebates and price protection, and accruals related to
other charges.

Deferred Revenue

Fiscal 2004 vs. Fiscal 2003

Deferred revenue declined 22.7% to
$29.1 million in 2004 from $37.7 million in 2003. Deferred revenue primarily relates to
payments associated with development contracts where revenue is recognized on a
percentage of completion basis, but payments are made according to contract terms (see
note 1 (j) to our consolidated financial statements).

Fiscal 2003 vs. Fiscal 2002

Deferred revenue increased to $37.7
million in 2003 from $0.3 million in 2002, largely as a result of cash received in
advance of revenue recognized relating to two development contracts.

FINANCING ACTIVITIES

Fiscal 2004 vs. Fiscal 2003

We generated cash from common shares
issued from the exercise of stock options totaling $56.5 million in 2004 compared to
$21.0 million in 2003.

In 2004, approximately 1.5 million
shares of the Company were acquired for the amount of $22.1 million to satisfy employee
incentive obligations (see note 12 (d) to our consolidated financial statements).

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MANAGEMENT'S DISCUSSION AND ANALSYS
(CONT.)

Fiscal 2003 vs. Fiscal 2002

Cash generated from common shares
issued from the exercise of stock options was $21.0 million in 2003, compared to $12.5
million in 2002. Bank indebtedness, which arose from the short-term financing provided to
the joint venture to construct our building, declined to nil in 2003 from $12.0 million
in 2002. Upon completion of the new building, a long-term mortgage was obtained in 2003
by the joint venture, resulting in an increase of our long-term debt obligations.

INVESTING ACTIVITIES

Capital Assets

Please
refer to notes 1(e), 1(h), and 5 to the consolidated financial statements.

Fiscal 2004 vs. Fiscal 2003

Our
capital expenditures net of proceeds on disposals increased 10.9% to $18.2 million in 2004
from $16.4 million in 2003.

Fiscal 2003 vs. Fiscal 2002

Capital expenditures net of proceeds
on disposals in 2003 declined to $16.4 million from $30.1 million in 2002, reflecting the
completion of our head office facility in Markham, Ontario in 2002. Engineering equipment
and leasehold improvements comprised the majority of capital expenditures in 2003.

SHORT-TERM
INVESTMENTS

Please
refer to notes 1(c), and 3 to the consolidated financial statements.

LONG-TERM
INVESTMENTS

Fiscal 2004 vs. Fiscal 2003

From time to time, we make equity
investments in other companies, generally in conjunction with a technology relationship.
In 2004, we invested $0.1 million in these types of investments, compared with $2.5
million in 2003.

Fiscal 2003 vs. Fiscal 2002

In 2003, we invested $2.5 million in
conjunction with a technology relationship and we disposed of all of our remaining shares
in Broadcom Corp., realizing a gain of $3.8 million. In 2002 we did not make any
long-term investments.

SUBSEQUENT
EVENTS

On September 1, 2004, we acquired
certain assets of RT&C International, our sales organization for South Korea, for a
cash consideration of $2.6 million, plus acquisition-related costs.

In September 2004, we signed an
agreement to purchase all of the shares of a company for a cash consideration of up to
$3.6 million, plus acquisition-related costs. The company, a high-technology embedded
solutions provider, is located in India. The acquisition is subject to regulatory
approval and is expected to close by December 31, 2004.

OUTSTANDING
SHARES

As at August 31, 2004, there were
249,287,125 ATI common shares outstanding or 256,208,025 shares on a fully diluted basis.
See notes 12(a) and 14 to the consolidated financial statements.

CLAIMS
AND PROCEEDINGS

In January 2003, we announced that
Staff of the OSC had filed a Notice of Hearing and Statement of Allegations (Notice)
in relation to ATI and others. The Notice alleged that ATI failed to disclose information
concerning the shortfall in revenues and earnings that occurred in the third quarter of
fiscal 2000, as required by the listing rules of the Toronto Stock Exchange. The Notice
also alleged that ATI made a misleading statement to Staff of the OSC in August 2000
regarding the events leading up to the disclosure on May 24, 2000 of the shortfall. Seven
individuals are also named in the Notice. The Notice alleged that six of these
individuals including K.Y. Ho, then Chairman and Chief Executive Officer of ATI, engaged
in insider trading contrary to the Securities Act. A hearing originally scheduled for
February  March 2004 has been rescheduled for March  June 2005.

See notes 16 and 22 of the
consolidated financial statements regarding other claims and proceedings affecting ATI.

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Risks
and Uncertainties

Our operating results have been and
will continue to be subject to quarterly and other fluctuations due to changing market
and economic conditions and various other factors set out below. As a result, our
revenues can fluctuate from quarter to quarter, and, within a quarter, revenues may vary
from month to month. In addition, because our operating expenses are largely independent
of revenues in any particular period, we may be unable to rapidly adjust our spending to
compensate for an unexpected revenue shortfall, which could adversely affect quarterly
operating results. As a result, it is difficult to accurately predict revenues and
profits or losses.

Our reported operating results may
vary from prior periods or may be adversely impacted in periods when we are undergoing a
product line transition during which sales of new products must be ramped up to replace
sales of our older products. These older products often come under significant pricing
and margin pressure as a result of competitorsactions in the marketplace.

Should our new products, including
integrated chipset products and products for the consumer electronics market, not offer
the features and performance required by our customers or fail to achieve meaningful
market share, our operating results will be negatively impacted. Our ability to continue
to sell and develop our products is dependent upon our ability to obtain licenses to
industry technology or other intellectual property rights, which may not be readily
available or available on commercially reasonable terms. As a result of any combination
of these or other issues referred to below, our operating results and common share price
may be subject to a significant level of volatility, particularly on a quarterly basis.
Factors that have affected our operating results in the past or could affect them in the
future include, among other things:

| |  |  | Levels
of growth or decline in the PC industry;
| | - |  | -----------------------------------------------

| |  |  | Rapid
and frequent technological change in the PC graphics industry;
| | - |  | --------------------------------------------------------------------

| |  |  | Demand
and acceptance of our products and those of our customers, including integrated graphics
components and consumer electronics;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Successful
and timely development and production of next-generation products, including products for
the consumer electronics market;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Changes
in the rate of exchange of Canadian currency to U.S. dollars;
| | - |  | ---------------------------------------------------------------------

| |  |  | Introduction
of new products by our competitors;
| | - |  | ------------------------------------------------

| |  |  | Availability
of licenses for industry technology or other intellectual property rights necessary for
the continued sale or development of our products;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Changes
to our overall average selling price resulting from competitive pressures;
| | - |  | ----------------------------------------------------------------------------------

| |  |  | Delays
or early introduction of new microprocessors or their related chipsets;
| | - |  | ------------------------------------------------------------------------------

| |  |  | Changes
to our overall product mix or the geographic regions where our products are sold;
| | - |  | -----------------------------------------------------------------------------------------

| |  |  | Research
and development costs associated with the development of new products;
| | - |  | -------------------------------------------------------------------------------

| |  |  | Increasing
product line complexity and our related management of inventory;
| | - |  | ---------------------------------------------------------------------------

| |  |  | Unexpected
variances in the cost or availability of materials, especially silicon wafer, memory,
printed circuit boards and packaging costs;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Changes
to the expected yield of our component products;
| | - |  | --------------------------------------------------------

| |  |  | Excess
or shortage of manufacturing capacity;
| | - |  | ---------------------------------------------

| |  |  | Volume
of orders received that can be filled in the quarter;
| | - |  | ------------------------------------------------------------

| |  |  | Seasonal
and variable demand associated with the PC industry;
| | - |  | -------------------------------------------------------------

| |  |  | Addition
or loss of significant customers;
| | - |  | ------------------------------------------

| |  |  | Supply
constraints and disruptions for other components incorporated into our products and those
of our customers; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------

| |  |  | New
laws that require us to undertake an evaluation of our internal controls may identify
internal control weaknesses which may require correction.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

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MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONT.)

As a result of the factors listed
above, period-to-period comparisons of our operating results should not be relied upon as
an indication of future performance. The results of any quarterly period are not
indicative of results to be expected for a full fiscal year. Accordingly, our operating
results may be below the expectations of securities analysts and investors. Our failure
to meet these expectations could adversely affect the market price of our common shares.

For a more complete discussion of
general risks and uncertainties which apply to our business and our operating results,
please see our Annual Information Form and other filings with Canadian and U.S.
securities regulatory authorities.

For a description of certain legal
proceedings affecting our business, please see notes 16 and 22 to the consolidated
financial statements.

Our
Accounting Policies

We prepare our consolidated
financial statements using Canadian GAAP and have provided a reconciliation of our
financial statements to U.S. GAAP in note 21 to the consolidated financial statements.
Significant accounting policies and methods used in preparation of our consolidated
financial statements are described in note 1 to the consolidated financial statements.

Under GAAP, we are required to make
estimates and assumptions when we account for and report assets, liabilities, revenue and
expenses and disclose contingent assets and liabilities in our financial statements. We
are also required to constantly evaluate the estimates and assumptions we use. We base
our estimates and assumptions on historical experience and other factors that we believe
are reasonable in the circumstances. Because our estimates and assumptions involve
judgment and varying degrees of uncertainty, actual results could materially differ from
our estimates and assumptions.

We make significant estimates when
determining provisions for sales returns and allowances, our allowance for doubtful
accounts, our provision for inventory obsolescence, stock-based compensation, the fair
value of reporting units for goodwill impairment testing, the useful lives and valuation
of intangible assets, the valuation of long-term investments, restructuring charges, our
worldwide income tax provision and the realization of future tax assets.

We believe the following are the
most critical accounting policies we follow as they rely heavily on our judgment and
estimates:

Revenue
Recognition

We recognize revenue when evidence
of an arrangement exists, risks and rewards of ownership have been transferred to
customers, selling price is fixed and determinable, and collectibility is reasonably
assured.

Estimated returns and allowances,
price protection and sales rebates are recorded as a reduction of revenue at the time of
revenue recognition. If our estimates of future market conditions and changing product
life cycles in the marketplace are inaccurate, we may be required to materially increase
customer incentive offerings, which could necessitate a further reduction of revenue. We
also provide for the estimated cost of product warranties at the time of revenue
recognition. If actual product warranty costs vary from our estimates, we may have to
record material adjustments to our warranty expense.

We primarily use a binding purchase
order as evidence of its sales arrangements and, in certain cases, use contractual
agreements. We consider delivery to occur upon shipment, provided risk and rewards of
ownership, including transfer of title, have passed to the customer. At the point of
sale, we assess whether collection is reasonably assured. If we determine that collection
is not reasonably assured, we defer recognition of the revenue until collection becomes
reasonably assured, which is generally upon the receipt of cash.

We follow the
percentage-of-completion method of accounting for contracts requiring us to develop
customized technology to meet a customers specifications. Under such contracts,
revenue is recognized based on the ratio of total costs incurred to date to overall
estimated costs. Provisions for estimated losses on contracts are recognized when
identified. Where estimating the final outcome of a contract is impractical, except to
ensure that no loss will be incurred, we use a zero estimate of profit until results can
be estimated more precisely. Under this method, the portion of total contract revenue
earned to date is determined by measuring total costs incurred. We then record an equal
amount of revenue against costs. Cost of revenue is adjusted to recognize the profit
element from the arrangement once we are able to estimate total revenue and total costs.

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Inventory
Valuation

We record raw materials at the lower
of cost and replacement cost. Finished goods and work in process are stated at the lower
of cost and net realizable value. Cost is determined on a first-in, first-out basis. We
write down our inventory for estimated obsolescence, and excess inventories based upon
assumptions about future demand and market conditions. The business environment in which
we operate is subject to rapid change in technology and customer demand. If actual market
conditions are less favorable than those estimated, additional material inventory
write-downs may be required.

Stock-based
Compensation

We adopted CICA Handbook Section
3870, Stock-based Compensation and Other Stock-based Payments, that
establishes standards for the recognition, measurement, and disclosure of stock-based
compensation and other stock-based payments made in exchange for goods and services
provided by employees and non-employees as of September 1, 2002. The standard requires
that a fair value-based method of accounting be applied to all stock-based payments to
non-employees and to employee awards that are direct awards of stock that call for
settlement in cash or other assets, or are stock appreciation rights, by the issuance of
equity instruments. The standard permitted us to continue to record no compensation cost
on the grant of stock options to employees. Consideration paid by employees on the
exercise of stock options is recorded as share capital.

We have applied the pro forma
disclosure provisions of the standard to awards granted on or after September 1, 2002
that are provided in note 12(c) to the consolidated financial statements. The estimated
fair value of each option granted was estimated on the date of the grant using the
Black-Scholes option pricing model based on the assumptions which we use with respect to
risk-free interest rate, dividend yield, volatility factor of the expected market price
of our common shares, and the expected life of the options.

Effective
September 1, 2004, we will expense the compensation cost relating to the grant of stock
options to employees.

Goodwill

We perform our annual goodwill
impairment test in the fourth quarter of each year, and more frequently if events or
changes in circumstances indicate that an impairment loss may have been incurred. We test
for impairment at the reporting unit level by comparing the reporting units
carrying value with its fair value. The fair values of the reporting units are estimated
using a discounted cash flow approach. The process we follow when determining a reporting
units fair value is subjective and requires judgment in making assumptions about
future results, including revenue and cash flow projections at the reporting unit level,
and discount rates. Future goodwill impairment tests may result in material impairment
charges.

Income
Taxes

Our worldwide income tax provision
is impacted by the amount of net income earned in each taxing jurisdiction and the rate
of tax payable in respect of that income. In the ordinary course of our global business,
there are many transactions and calculations where the ultimate tax outcome is uncertain.
The final tax outcome of these matters may be different than the estimates we have made
in determining our income tax provisions and accruals. If our estimates and assumptions
are determined to be inaccurate there could be a material effect on our income tax
provision and net income in the period in which the determination is made.

We record a valuation allowance to
reduce our future tax assets to the amount of future tax benefit that is more likely than
not to be realized. We consider future taxable income in our operating jurisdictions and
ongoing prudent and feasible tax planning strategies in determining the need for the
valuation allowance. If we were to determine that we could realize our future tax assets
in excess of their recorded amounts we would record an adjustment to the future tax asset
and increase income in the period the determination is made. Alternatively, if we were to
determine that we could not realize all or parts of our future tax assets, we may record
a material charge to income in the period the determination is made.

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MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONT.)

During
2004 we have applied changes as a result of newly issued accounting standards as follows:

Hedging
Relationships

During fiscal 2004, we adopted CICA
Accounting Guideline No. 13, Hedging Relationships, for our derivative
instruments. We engaged in activities to purchase certain derivative financial
instruments, principally forward foreign exchange contracts, to manage foreign currency
exposure. ATIs policy is not to utilize derivative financial instruments for
trading or speculative purposes.

ATI formally documents all
relationships between hedging instruments and hedged items, as well as its risk
management objective and strategy for undertaking various hedge transactions. This
process includes linking all derivatives to specific assets and liabilities on the
balance sheet or to specific firm commitments or anticipated transactions. We also
formally assess, both at the hedges inception and on an ongoing basis, whether the
derivatives that are used in hedging transactions are highly effective in offsetting
changes in fair values or cash flows of hedged items.

We purchase forward foreign exchange
contracts to hedge anticipated Canadian dollar expenses pertaining to our operations in
Canada. These instruments are not recognized in the consolidated financial statements at
inception. Foreign exchange gains and losses on these contracts are deferred off-balance
sheet and recognized as an adjustment to the operating expenses when the operating
expenses are incurred.

Realized and unrealized gains and
losses associated with derivative instruments, which have been terminated or cease to be
effective prior to maturity, are deferred under other current, or non-current, assets or
liabilities on the balance sheet and recognized in income in the period in which the
underlying hedged transaction is recognized. In the event a designated hedged item is
sold, extinguished or matures prior to the termination of the related derivative
instrument, any realized or unrealized gain or loss on such derivative instrument is
recognized in income.

Revenue
Recognition

In December 2003, the Emerging
Issues Committee issued EIC-141, Revenue Recognition, and EIC-142, Revenue
Arrangements with Multiple Deliverables. EIC-141 incorporates the principles and
guidance under the SECs Staff Accounting Bulletin No. 101 and U.S. GAAP and EIC-142
addresses how to identify whether goods or services or both that are delivered separately
in a bundled sales arrangement should be accounted for separately. The primary purpose of
EIC-142 is to determine if separation is necessary, and, if so, how to measure and
allocate the arrangement consideration.

ATI fully adopted EIC-141 and
EIC-142 on a prospective basis on March 1, 2004. We were not impacted by these standards.

In addition to the standards we have
applied in the year, there are additional new standards that will be applied in future
years as follows:

Generally
Accepted Accounting Principles

In July 2003, the CICA issued
Handbook Section 1100, Generally Accepted Accounting Principles. This section
establishes standards for financial reporting in accordance with Canadian GAAP. It
describes what constitutes Canadian GAAP and its sources. This section also provides
guidance on sources to consult when selecting accounting policies and determining
appropriate disclosures when a matter is not dealt with explicitly in the primary sources
of Canadian GAAP. This guideline is effective for our 2005 fiscal year, with early
adoption encouraged. We expect that the adoption of this standard will have no material
impact on our financial position, results of operations or cash flows.

Asset
Retirement Obligations

In March 2003, the CICA issued
Handbook Section 3110, Asset Retirement Obligations. This section establishes
standards for the recognition, measurement and disclosure of liabilities for asset
retirement obligations and the associated retirement costs. This section applies to legal
obligations associated with the retirement of a tangible long-lived asset that result
from its acquisition, construction, development or normal operation. This guideline is
effective for ATIs 2005 fiscal year, with early adoption encouraged. We are
currently evaluating the impact of adoption on our consolidated financial statements.

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Consolidation
of Variable Interest Entities

In June 2003, the CICA approved
Accounting Guideline AcG-15, Consolidation of Variable Interest Entities, which
provides guidance for determining when an enterprise includes the assets, liabilities and
results of activities of entities that are subject to control on a basis other than
ownership of voting interests (a variable interest entity). This guideline is
effective for the second quarter of our 2005 fiscal year, with early adoption encouraged.
We expect that the adoption of this standard will have no material impact on our
financial position, results of operations or cash flows.

Liabilities
and Equity

In November 2003, the CICA approved
amendments to Handbook Section 3860, Financial Instruments  Presentation and
Disclosure, to require obligations that may be settled, at the issuers
option, by a variable number of the issuers own equity instruments to be presented
as liabilities. Thus securities issued by an enterprise that give the issuer unrestricted
rights to settle the principal amount in cash or in the equivalent value of its own
equity instruments will no longer be presented as equity.

The CICA concluded that not all such
obligations establish the type of relationship that exists between an entity and its
owners, but rather they convey more of a debtor/creditor relationship because they
require the issuer to convey a fixed amount of value to the holder that does not vary
with changes in the fair value of the issuers equity instruments. Therefore, these
instruments should be presented as liabilities. The standard will be effective for our
2006 fiscal year. We expect that the adoption of this standard will have no material
impact on our financial position, results of operations or cash flows.

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Quarterly Information