The deal gives Mubadala Development Co., the government's strategic investment arm, 49 million newly issued shares, or about 8.1 percent ownership of AMD. The deal does not include a board seat and won't be subject to review by the U.S. Committee on Foreign Investment.

"This investment strengthens AMD's ability to deliver customer -centric innovation and choice to the marketplace, creating greater value for all of our shareholders," AMD Chairman and Chief Executive Hector Ruiz said.

ATI Buy Caused Problems

"AMD is a great fit for Mubadala's investment approach -- a spirited competitor and innovator led by a strong and visionary management team," said Mubadala CEO and Managing Director Khaldoon Khalifa Al Mubarak. "We see significant opportunities for long-term growth and value creation."

AMD said it would use the funds for research and development, innovating new products and improving manufacturing quality, which is crucial to AMD's success in light of the recent issues the company has been facing.

In addition to being eclipsed by Intel's 45-nm Penryn chips, AMD posted a rough third quarter, with losses of $396 million due in part to its $5.4 billion acquisition of ATI Technologies. While that purchase is eventually expected to yield advantages for AMD, in the short term AMD has trouble stretching its finances to handle it.

Some analysts have called the new financing a Band-Aid. "This solves a relatively short-term problem, but it still doesn't fix the longer-term problem, which is the need to generate cash faster," said IDC's Crawford Del Prete.

AMD a 'Scrappy Competitor'

But in a telephone interview, Roger Kay, principal analyst with Endpoint Technology Associates, said the deal is a "pretty good" one for AMD. "What AMD wants is access to short- and intermediate-term financing," Kay said. "Abu Dhabi represents a pretty good partner since they're not on the board and it's not structured as debt." In addition, the new shares have a "neutral dilutive effect" on existing shareholders.

On the technology front, however, "AMD is clearly behind Intel in process development," Kay said. "Intel has gotten its technology house straightened out and is going to be very aggressive."

Don't count AMD out yet, though. Intel's challenger is "a scrappy competitor," Kay said, and will attempt to compete on price while Intel is "holding the high card on technology." The problem is that Intel's 45-nm process gives it a better price profile, which will make it harder for AMD to "play the price card," Kay said.

AMD will have to find a way to bridge the gap until it achieves a 45-nm process toward the end of next year, Kay went on to say. "But even as it does that," Kay said, "Intel will move to 32 nm."

A key part of AMD's current cash problems stems from the huge acquisition of ATI. At $5.4 billion, "it was a very large acquisition that stressed the company financially," Kay said. "The best benefits of ATI will come later on," a year or two into the future. "The costs will tend to fade with time and benefits will grow," he said.