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Advanced Micro Devices is to invest $3.2bn in a new chip plant in the state of New York to stay competitive with its rival Intel in microprocessor production.

In a joint press conference with New York politicians including Governor George Pataki, AMD said the plant would be built over the next three to five years and would employ directly 1,200 people.

New York offered cash incentives of about $900m to bring AMD to the state and with an additional tax abatement offer, the package was worth more than $1bn to the number two microprocessor maker.

AMD said it had spoken to various governments and explored locations in Europe and Asia before settling on the site in Malta, 25 miles north of the state capital Albany.

On Thursday, Intel opened a new $2bn chip factory near Dublin in Ireland that will produce processors cut from the latest 300mm diameter wafers with circuits just 65 billionths of a metre wide. The AMD plant, depending on when it comes on-stream, will produce next-generation, 45-nanometre chips or, more likely, 32nm ones.

Preston Snuggs, Manufacturing Systems vice-president at AMD, said New York had been chosen because of the incentives offered, the existing infrastructure and the availability of talent.

The site would also put manufacturing close to a source of its technology, with AMD already working with IBM at a chip facility in East Fishkill, New York.

Mr Snuggs said AMD’s factory in Dresden, Germany, would continue to be the centre of chip production. The company announced a $2.5bn refurbishment of that plant last month to take place over the next two years.

Mr Snuggs said paying for the New York plant would take place in a different timeframe, with construction starting between 2007 and 2009 for production to begin in 2010 or beyond.

This would allow AMD to pay for it through operating income and the incentives, without having to take on new debt.

The new factory would not replace AMD’s relationship with IBM or its use of foundry manufacturer Chartered Semiconductor in Asia to fulfil its chip needs.

“This creates a flexible way for AMD to increase capacity. We intend to grow the market as well as give ourselves assurance of supply for the future,” he said. AMD expects to have the capacity to supply a third of the market for the dominant x86 microprocessor by 2008, which would mean major market share gains.

Intel has traditionally held more than 80 per cent of the market, with AMD taking up virtually all of the rest. But AMD has been making inroads with higher performing chips, and Intel’s share fell to 74 per cent in the first quarter, according to Mercury Research.

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