AMD, Advanced Micro Devices, announced on Tuesday that it will split in two companies as designing and manufacturing their products is becoming a more and more difficult job to pull off. The new companies will take care of designing and manufacturing separately. AMD cut a deal with ATIC, which is going to invest up to $6 billion in AMD products in the following 5 years, the deal allowing Advanced Micro Devices to focus more on designing better and more powerful microprocessors.

The funds will enable AMD to expand its Dresden operation and build a state-of-the art plant in Albany, New York.

Those plants will be the centerpiece of a new company, tentatively called the Foundry Company, in which Advanced Technology Investment Co (ATIC), an Abu Dhabi-based firm, will hold 55.6 per cent. It will be 44.4 per cent owned by AMD.

"With The Foundry Company, AMD has developed an innovative way to focus our efforts on design while maintaining access to the leading- edge manufacturing technologies that our business needs without the required capital-intensive investments of semiconductor manufacturing," AMD chief executive Dirk Meyer said in a statement.

The move by AMD reflects the growing costs needed to develop and manufacture ever smaller, faster and more energy-efficient chips. Hans Deppe, the head of AMD's Dresden operation, said production there would increase in the first half of 2009. Around 2,800 workers are employed in the company's two plans in the city.

AMD shares rose more than 25 per cent on the news to 5.35 dollars ahead of the start of regular trading in New York.

This new turn of affairs is considered by the people at AMD one of the biggest and boldest steps in the company’s history.

AMD has been and still is Intel’s direct competitor, the two fighting almost head to head for domination in the computer parts business. The fact that Intel is the only company that still designs and manufacturers its own products might count in the long run and can be seen as an advantage. AMD is not looking for an increased profit, it actually expects that the split will not bring losses to the company and that financially AMD will remain where it is today.

According to Dick Meyer a small number of layoffs are possible due to the fact that workers will have to be reassigned to the new company’s centers. Overall, this is a good thing for AMD as its chips are expected to get better and better, possibly becoming a bigger threat for Intel’s products.