In a move to dramatically cut costs and better compete with Intel Corp., chip maker Advanced Micro Devices Inc. said Tuesday it will spin off its factories into a new joint venture with investors in the Persian Gulf state of Abu Dhabi.

The deal should shore up AMD's finances and let it focus on the design and development of computer chips. The new venture, to be based in the U.S. and called Foundry Co., will absorb AMD's manufacturing plants, including two in Dresden, Germany.

In conjunction with the spin off, Abu Dhabi's investment arm, Mubadala Development Co., will invest $314 million to more than double its current stake in AMD to 19.3 percent from 8.1 percent.

Another entity backed by the Persian Gulf state, Advanced Technology Investment Co., will invest $2.1 billion for a stake in Foundry Co., which also will assume about $1.2 billion of AMD's existing debt. Advanced Technology Investment then plans to contribute between $3.6 billion and $6 billion to Foundry Co. over the next five years to fund the expansion of the company's chip-making capacity. That plan includes the construction of a new facility in Saratoga County, New York.

Sunnyvale, Calif.-based AMD, the world's No. 2 maker of computer microprocessors, has been saddled with debt and hurt by product delays. Hector Ruiz stepped aside as CEO in July as pressure grew for the company to improve its finances and regain its competitive edge against Intel. AMD lost $1.19 billion in the second quarter, nearly double its losses a year earlier.

AMD's finances have also been hurt by its 2006 acquisition of graphics chip maker ATI Technologies. As part of that buyout, AMD absorbed divisions that make chips for cell phones and digital television sets. Both were underperforming, and AMD wrote down their value by $876 million.

AMD's shares have lost nearly 44 percent since the start of the year, compared with about 25 percent for the Dow Jones industrials.

AMD replaced Ruiz with Dirk Meyer, who had been president and chief operating officer, and focused on developing a strategy for cutting its manufacturing expenses, which are large for any semiconductor company but particularly troubling for AMD as it faces fierce competition with Intel. Intel has about 80 percent of the market for PC microprocessors, while AMD has most of the rest.

John Barton, an analyst with Cowen and Co., said he was skeptical of the new manufacturing strategy, partly because the spinoff company's management will be coming from AMD.

Foundry's board will be equally comprised of executives from AMD, which will own 44.4 percent of the company, and Advanced Technology Investment, which will own a 55.6 percent stake.

An AMD senior vice president, Doug Grose, is to become chief executive of Foundry Co., and Ruiz, who had been AMD chairman, will step down to take on that post at Foundry Co.

Ruiz noted during a conference call that semiconductor companies, faced with rising costs from ever-more advanced chip production, are looking for independent foundries to do their manufacturing. It is not uncommon for chip companies to focus on design and development only — these are called "fabless" semiconductor companies and include graphics chip maker Nvidia Corp.

The transaction is expected to close at the beginning of 2009, pending regulatory approvals. Foundry Co. will start operations with about 3,000 employees from AMD facilities in Silicon Valley, New York, Dresden, and Austin, Texas. If "commercially justified," AMD said, Foundry might also build new factories in Abu Dhabi.