Could Advanced Micro Devices (AMD) - Get Report love New York?

Reports are rampant that the chipmaker is considering building a new chip factory in New York -- a notion that seems hard to imagine, given that the ink has just dried on AMD's announcement of a $2.5 billion project that should easily accommodate its manufacturing needs for the next several years.

That hasn't quieted a chorus of voices in New York from contending that the chipmaker, which is in a heated battle to steal market share from

Intel

(INTC) - Get Report

, is scouting the region for a new chip-fabrication facility.

In recent news reports, two New York politicians have confirmed that officials from Sunnyvale, Calif.-based AMD have visited New York to discuss building a fab at various locations in the state.

AMD spokesman Jon Carvill says that the company has not made any announcements about the location of its next fab, and that the decision about when it will construct another manufacturing facility will be based on timing and market demand.

"We haven't made any commitment to what the timing and market perspective will be," says Carvill.

AMD needs as much manufacturing capacity as it can get to achieve its publicly stated goal of capturing 30% of the market for microprocessors in the next couple of years (AMD had 21% market share at the end of this year's first quarter, according to Mercury Research).

But according to some industry analysts, AMD's recently announced plans to upgrade and expand its manufacturing operations in Dresden, Germany, should be enough for the company to meet that goal.

Additionally, AMD has a deal in place with third-party chip manufacturer

Chartered Semiconductor Manufacturing

(CHRT)

, giving AMD extra manufacturing capacity should demand prove better than expected.

Building an entirely new fab for more capacity would seem not only superfluous, but also incredibly risky, given the high costs involved, the fears of an industrywide chip glut and the increasingly fierce competition in the microprocessor market.

The Intel Factor

"Rumors of an expansion in New York at this point seem to me to be, at best, premature, if not fully inaccurate," says Nathan Brookwood, a semiconductor analyst at Insight 64.

Though AMD's chips have been in high demand throughout the year, many analysts expect Intel's forthcoming release of a new batch of microprocessors to close the performance advantage that AMD has been enjoying.

In a recent posting on his blog, Rahul Sood, president of gaming PC maker VoodooPC, said that Intel's forthcoming Conroe desktop processor has performed impressively in his company's tests.

Until now, Sood wrote, VoodooPC offered only AMD chips in its desktop and workstation PCs. "People can't expect Intel to remain in this position forever," wrote Sood, "and as such, we have been eagerly awaiting the launch of Conroe."

Reports of a potential fab for AMD in New York surfaced earlier this month in the

Albany Times Union

. The article cited state Senate Majority Leader Joseph Bruno as confirming that AMD was considering a site for a new factory in New York.

Calls to Bruno's office were not returned. Calls to New York Assembly Speaker Sheldon Silver, who said in a separate report that he had met with AMD to discuss terms of an agreement, also were not returned.

According to reports, the state of New York has put together a $1 billion package of incentives to lure AMD to the Empire State, and AMD is considering two different sites: one in Saratoga and another in Utica on the campus of the State University of New York's Institute of Technology campus.

AMD is no stranger to New York. The company has various R&D partnerships with

IBM

(IBM) - Get Report

, including a project at IBM's East Fishkill, N.Y., facility involving advanced semiconductor process technologies.

AMD also has a partnership at the State University of New York at Albany's nanotech center.

Building a new fab from scratch takes at least two years, says iSuppli semiconductor manufacturing analyst Len Jelinek. The process takes longer if a company needs to take care of the initial tasks, such as securing the land and all the necessary permits.

The cost of building and equipping such a facility is about $3 billion, Jelinek says.

A new fab would give AMD a substantial chunk of manufacturing capacity, said Jelinek. "But if you look at the long-term road maps of these types of activities, at AMD and at Intel, you really have to be out there thinking strategically about the future," he says.

"The worst thing that can happen is to get caught with an undersupply of capacity and lose market share."

Jelinek points to another rumor as having some bearing. Were AMD to acquire graphics chipmaker

ATI Technologies

(ATYT)

, as one Wall Street analyst predicted last month, an additional fabrication facility would not be so excessive.

"You can put a scenario together that says with additional mergers and acquisitions at AMD, then potentially, it would be a situation where they would be able to fill that

fab capacity relatively quickly," says Jelinek.

True, ATI is a fabless chip company, meaning that it designs its graphics processors itself and outsources the manufacturing to a third party. But AMD's business model of doing most manufacturing in house means the company could conclude that it's more cost-effective to manufacture the graphics processors itself in the event of an acquisition.

That said, many people consider a marriage between AMD and ATI to be

highly unlikely, given the two companies' different product focus and business models.

For such strange bedfellows, a shared fab might be the only thing they have in common.