Under terms of the deal, Intel will pay AMD US$1.25 billion, and has agreed to a set of business practice provisions, according to a statement from the companies.
AMD and Intel also said they have agreed to a new five-year cross-license agreement, and have given up claims of breach of contract from the previous license agreement.
"While the relationship between the two companies has been difficult in the past, this agreement ends the legal disputes and enables the companies to focus all of our efforts on product innovation and development," the companies said in a statement.
The settlement is a "transparent and public agreement to create a level playing field in the x86 processor industry," AMD CEO Dirk Meyer said during a conference call.
On its part, AMD has agreed to drop all regulatory complaints worldwide and all pending legal disputes, including a case in U.S. District Court in Delaware and two cases in Japan. The agreement will be made public in filings with the Securities and Exchange Commission, the companies said.
"I think both companies have realized that it's better to put this behind them and instead focus on developing the x86 market," said Nathaniel Martinez, program director in IDC's European System Infrastructure Solutions Group.
AMD needs all the money it can get a hold of, according to Martinez. Intel also needs AMD to keep competition agencies off its back, he said.
The settlement should also set a new tone for the relationship between the companies, which has been "intense and emotional and at times acrimonious for many years," said Thomas McCoy, AMD's executive vice president of legal, corporate and public affairs. The agreement will see the companies attempt to work out any future disputes privately before they spill into the courts or public domain, he added.
Meanwhile, on a separate conference call, Intel CEO Paul Otellini portrayed the settlement as one of expedience, and said the company was not admitting any wrongdoing.
"We have not wavered in our convictions that Intel has operated in the boundaries of the law," he said. "While it pains me to write a check at any time, in this case I think it made a practical settlement and a good compromise between the two companies. In many ways, it was a small multiple of the damages that could have been awarded [by a jury]," he said.
Intel still has legal battles to fight, however. On Nov. 4, New York Attorney General Andrew Cuomo filed a federal antitrust lawsuit against Intel, charging that the chip giant conducted a "systematic campaign" of illegal conduct to protect a monopoly.
Cuomo's lawsuit says Intel forced computer makers into agreements to favor Intel chips and threatened to punish those thought to be working too closely with Intel competitors like AMD.
Cuomo's lawsuit came about two weeks after news reports that the U.S. Federal Trade Commission is considering filing a formal complaint against Intel. The New York attorney general's lawsuit mirrored AMD's suit, according to Intel.
The European Commission fined Intel ?1.06 billion (equivalent to US$1.44 billion at the time) in May, after finding it guilty of antitrust violations.
In 2008, the Korea Fair Trade Commission fined Intel about $25 million for abusing its dominant position in the PC processor market.
Meanwhile, Intel's appeal of the E.U. antitrust ruling last May is unaffected by Thursday's surprise settlement with AMD, said Intel spokesman Robert Manetta.
Intel appealed to the E.U.'s second-highest court, the Court of First Instance (CFI), in Luxembourg in September, accusing the regulators of erring in law and of producing sloppy analysis when it found the company guilty of monopoly abuse.
"We're well into our appeal at the CFI and continuing to pursue that," Manetta said in an e-mail.
Intel said in its appeal that the Commission erred because it failed to prove that actual foreclosure of competition occurred as a result of discounts the chip maker gave to business partners. Intel accused the Commission of procedural errors that denied the company the ability to defend itself properly.
It described the $1.45 billion fine as "manifestly disproportionate" and asked the court to annul it.
There is no strict timetable for an appeal at the CFI, but cases are usually heard within a year of being lodged, and a ruling by the CFI can take a further 18 months.
Thursday's settlement also should have no bearing on the U.S. Federal Trade Commission's inquiry into Intel's business practices, according to David Balto, the commission's former policy director.
"The job is not done," Balto said via e-mail, speaking independently and not on behalf of the FTC. "The Intel-AMD case is a private dispute. Although the settlement may eliminate some barriers, FTC action is necessary to assure long-term relief in this market, that competition is fully restored, and that consumers have the benefit of an open market."
(Paul Meller in Brussels, Mikael Ricknäs in Stockholm, Grant Gross in Washington, D.C., and Chris Kanaracus in Boston contributed to this report.)
