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ATIC will own 55 per cent of the manufacturing business - which will be temporarily called "Foundry Company", and the move is expected to make AMD a stronger competitor to Intel.

Currently, Intel sells about 80 per cent of the CPUs in the world's one billion PCs, whereas AMD makes the rest.

Another Abu Dhabi government company, Mubadala Development Co, will spend £178 million to increase its stake in AMD to 19.3 percent, from the 8.1 percent it already owns.

"Today is a landmark day for AMD, creating a financially stronger company with a tightened focus," said Dirk Meyer, president and CEO at AMD.

ATIC Chairman Waleed Al Mokarrab said on a conference call that this was his company's first major investment and "though owned by the Abu Dhabi government, ATIC will be directed by commercial principals that will generate commercial returns."

The 3,000-person Foundry Company will make all of AMD's CPUs as well as chips for other companies.