AMD has confirmed that it is to spin off its chip manufacturing facilities to form a new foundry company.

The new entity will produce chips for other companies as well as AMD, leaving the company to concentrate on developing its processor designs.

Under the deal, the Advanced Technology Investment Company of Abu Dhabi is to create a firm under the temporary name of The Foundry Company that will take over AMD's two Dresden manufacturing plants and begin construction of a new facility near New York City.

The transaction is expected to close early in 2009, depending on regulatory and shareholder approval. The new firm will also take on approximately $1.2bn of AMD's existing debt.

As a result, AMD expects to strengthen its financial position and be better able to focus on the design and development of its processor and graphics chips.

"With this transaction, AMD is assured access to world-class fabrication facilities without the expense of having to maintain our own foundries," said Dirk Meyer, AMD president and chief executive.

The move is being seen as necessary to help AMD position itself against Intel, its chief rival in the PC processor market.

Beatriz Valle, research analyst for the European server team at analyst firm IDC, said: "AMD has had some challenges, such as Barcelona being delayed, and this is the way they can focus on streamlining their business operations."

Valle added that AMD will now be able to focus on development, get rid of its debt and try to regain some of the market share it has lost to Intel over the past couple of years by bringing its forthcoming Shanghai processor to market.

The analyst does not believe that the separation of the fabrication facility from AMD's design team would necessarily put the company at a disadvantage.

As part of the move, AMD chairman Hector Ruiz will become chairman of The Foundry Company, while Doug Grose, senior vice president of manufacturing operations at AMD, will be made chief executive.

The Foundry Company is set to take over AMD's joint development partnership with IBM, and continue work on 22nm silicon-on-insulator technology.