ALBANY - Semiconductor maker Advanced Micro Devices Inc., lured by about $1 billion in state incentives, will build a multibillion dollar chip manufacturing plant in upstate New York and create 2,000 permanent jobs, state and company officials said Friday.

AMD, based in Sunnyvale, Calif., chose to locate the new plant on a 600-acre site in Malta, about 25 miles north of Albany, after considering bids from East Asia and Germany, state officials said.

“The Hudson Valley is going to be America's next Silicon Valley,” Pataki said. “We're well on our way to achieving that, I'm extremely confident this is just the beginning.”

Pataki said the state and company would invest $3.2 billion initially adding another $2 billion over the next few years. The deal comes after several years of Pataki efforts to entice a major chip manufacturer to come to New York.

The company had also been considering another site in the central New York town of Marcy the state purchased 25 years ago, officials said. A state data processing center once expected to be built in Albany should now go there, said Senate Majority Leader Joseph Bruno.

AMD Chief Executive Hector Ruiz said the incentive package offered by the state was the key in getting his company's investment.

“This area is really ripe for development with the combination of educational institutions, people and facilities,” Ruiz said.

The state is providing about $1 billion in grants for construction and equipment, tax credits and other Empire Zone benefits. About $650 million of the money will come directly in grants.

“Philosophically, we'd prefer not to have to” offer incentives, Pataki. However, if the state didn't, AMD would have gone elsewhere, he said. AMD was also considering locating the plant in Germany, where AMD already has two chip making facilities, and in East Asia, Pataki said.

Construction on the 1.2 million square foot plant is slated to begin in July 2007 and be completed by July 2009. The plant will be fully operational sometime between January 2012 and January 2014.

In addition to the permanent jobs, building the chip-making plant would create about 2,000 construction jobs for up to two years and help add another 3,000 jobs to companies created to support plant operations, Ken Green, president of the Saratoga Economic Development Corp., said earlier this week.

“We're thrilled,” said Matthew Maguire, a spokesman for the Business Council of New York State. “This is great news for upstate and New York state no matter how you look at it. Our high tech assets are our best competitive advantage and that advantage just got even stronger.”

Worldwide chip sales are expected to total $249.6 billion this year, a 10 percent increase from last year, according to the Semiconductor Industry Association.

AMD is Intel Corp.'s biggest rival in the market for the microprocessors that act as the brains of personal computers.

The company already has a presence in the Albany area.

In 2005, AMD, three other computer chip makers and the state announced they would spend $600 million over the next several years on a research, education and economic development project at the College of Nanoscale Science and Engineering at the University at Albany. The project is focusing on creating the next generation of computer microchips while limiting costs.

AMD is also taking part in a $100 million project at Rensselaer Polytechnic Institute in Troy to create the Computational Center for Nanotechnology Innovations, or CCNI. Funded by the state and IBM Corp., the CCNI is expected to be one of the world's top 10 supercomputing centers and will focus on reducing the time and costs associated with creating nanoscale materials, devices, and systems.