Advanced Micro Devices

(AMD) - Get Report

is going to New York.

The company announced late Friday that it has signed a deal to build a $3.2 billion chip-fabrication facility in upstate New York, one of the largest private investments in New York state history.

New York state will give AMD about $900 million in incentives to locate its fab in Saratoga, in a move that's expected to create more than 1,200 tech jobs and thousands of construction jobs.

AMD chief Hector Ruiz announced the deal alongside New York Gov. George Pataki and several state legislators at an conference in Albany on Friday afternoon.

"AMD's ability to serve market demand for our industry-leading technology depends on an intelligent, flexible way to scale our manufacturing capacity," Ruiz said in a statement.

The Sunnyvale, Calif., chipmaker's interest in building a facility in New York

had been rumored for weeks. AMD also recently announced that it was spending $2.5 billion to upgrade its existing chip-manufacturing facilities in Dresden, Germany.

That expansion is expected to boost AMD's chips output by four times in the next four years.

AMD is in a fierce battle with

Intel

(INTC) - Get Report

, the world's No.1 chipmaker, to provide the microprocessors that serve as the brains of personal computers and servers.

While AMD had a 21% share of the market at the end of the first quarter, the company is aiming to grab 30% in the next few years.

The newest fab will be located at the Luther Forest Technology Park in Saratoga County. With chip production slated to begin sometime between 2012 and 2014, the fab will create microprocessors that feature 32-nanometer circuitry -- two generations ahead of today's most advanced chips.

The deal allows construction of the 1.2 million-square-foot facility to begin between July 2007 and July 2009.

"This is a historic day for the Capital Region, for upstate and for the entire state of New York, as this agreement sends a loud and clear message both nationally and internationally that the Empire State is in the forefront of the global high-tech economy," Pataki said in a statement.

Shares of AMD were off 4 cents at $25.10 in extended trading.