Lured by almost $1bn in incentives, AMD has inked an agreement with the State of New York to construct a $3.2bn fab there.

The announcement of plans to build the 300mm 32nm process 600-acre chip manufacturing plant in Malta, confirms recent speculation that AMD was in talks with legislators to build a facility in upstate New York.

The plan, announced Friday in a joint statement by AMD and New York State, gives AMD $900mn in state incentives, including grants for construction and equipment, tax credits and other New York City Empire Zone benefits, once the company commits to the agreement. Under the terms of the non-binding agreement, AMD does not have to officially commit to the project for two years.

AMD said it plans to fund the plant construction out of operating cash flow. Construction is slated to begin between July 2007 and July 2009, and the plant should be fully operational between December 2012 and December 2014, the company said.

The company has been ramping up production worldwide as it seeks to grow and increase market share. Today’s news follows the MPU maker’s $2.5bn investment in its Dresden, Germany-based Fab-38. AMD estimates that by the end of 2007, the 300mm plant will be at full capacity, effectively producing 20,000 wafers a month. This, combined with AMD's existing 300mm 65nm Fab-36, will increase the company's total production capacity to 45,000 wafers a month.

However, "the market could potentially experience trouble absorbing these increases", Tim Luke, managing director of technology equity research at Lehman Brothers, said in a research note. With recent expansion, processor capacity is set to increase by 17 per cent to 19 per cent this year, while the end market is expected to experience less than 10 per cent unit growth, Lehman Brothers said. The firm expects the company to continue to lower processor prices in the second half of the year.