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AMD's Fab Investment

It was a busy Monday for Advanced Micro Devices (NYSE: AMD  ) . While others were hosting barbeques, AMD was in Dresden, Germany to announce a $2.5 billion overhaul of its chip-making facilities over the next three years.

Dresden is a manufacturing hub for AMD. Its Fab 30 facility will receive $2 billion worth of improvements and be renamed Fab 38. Meanwhile, the relatively new Fab 36 factory will benefit from $500 million in upgrades. A separate clean room for sensitive work is also planned, which could also help expand capacity.

It's an ambitious plan, to be sure. But I can also see the logic in it, as management says it wants to improve its processor manufacturing equipment so that chips can be produced on 300-millimeter wafers. That would be a 100-millimeter improvement from current technology.

Here's why that matters. Wafers are as they sound: thin circles like rolled-out cookie dough, from which chips are punched. Larger wafers produce more chips. More chips mean more capacity to meet demand.

And there is plenty of demand, according to AMD CEO Hector Ruiz. He predicts momentum will continue to increase, pointing to his company's legal tussle with Intel (Nasdaq: INTC  ) as a catalyst for more competitive markets. That may sound overly optimistic, but it would explain why AMD recently signed up Chartered Semiconductor Manufacturing (Nasdaq: CHRT  ) to produce its chips when necessary.

Frankly, I'm not as Professor Positive sure of AMD's long-term success as Ruiz is. But he's betting a lot of money on being right. With his track record for sticking it to rivals, that has to count for something.

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Fool contributorTim Beyersstill uses a PowerPC processor in his Mac. He's just old-school that way. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out which stocks he owns by checking Tim's Foolprofile. The Motley Fool has an ironcladdisclosure policy.

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