Global chip giant Intel will pay rival Advanced Micro Devices (AMD) $1.25 billion as the two chip makers agreed to end all antitrust and patent suits, closing a long-running battle between the two companies.

Shares of AMD jumped 23% to $6.52.

Under the terms of the agreement, AMD and Intel obtain patent rights from a new five-year cross license agreement.

AMD is dropping suits in the US and Japan, and withdrawing complaints to antitrust regulators.

Intel and AMD have a history of legal battles that dates back to the 1980s.

In 2005, AMD filed suit against Intel, alleging that Intel abused its dominant market position to keep its tight grip on the PC industry.

In a joint statement the two companies commented,"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."

As a result of the legal settlement announced today AMD, Intel ajusted its fourth-quarter financial expectations to reflect the impact of the $1.25 billion settlement payment.

Intel now expects spending (R&D plus MG&A) in the fourth quarter to be approximately $4.2 billion, up from $2.9 billion. In addition, the effective tax rate is expected to be approximately 20 percent, down from 26 percent. All other expectations are unchanged.

Last May, the European Commission announced a fine of €1.06 billion on US chip giant Intel violating European antitrust rules on the abuse of a dominant market position (Article 82) by engaging in illegal anticompetitive practices to exclude competitors from the market, in particular its American rival AMD, for computer chips called x86 central processing units (CPUs).

The Commission said it has also ordered Intel to cease the illegal practices immediately to the extent that they are still ongoing. Throughout the period October 2002-December 2007, the Commission said Intel had a dominant position in the worldwide x86 CPU market (at least 70% market share). The Commission found that Intel engaged in two specific forms of illegal practice. First, Intel gave wholly or partially hidden rebates to computer manufacturers on condition that they bought all, or almost all, their x86 CPUs from Intel. Intel also made direct payments to a major retailer on condition it stock only computers with Intel x86 CPUs. Such rebates and payments effectively prevented customers - and ultimately consumers - from choosing alternative products. Second, Intel made direct payments to computer manufacturers to halt or delay the launch of specific products containing competitors’ x86 CPUs and to limit the sales channels available to these products.

Last week, an antitrust suit was filed against Intel after it "used bribery and coercion" to maintain market share, in the words of New York Attorney General Andrew Cuomo.

Cuomo alleges that Intel bribed and cajoled computer companies - - IBM, Dell, and Hewlett-Packard - - into equipping their products solely with Intel chips.

Citing internal emails from the three computer manufacturers and Intel, Cuomo suggests that the chip company used a system of "rebates" to coax its customers to remain Intel-exclusive. The rebates, in some cases, were greater than the computer firms' quarterly profits.

In addition, says Cuomo, Intel squeezed Dell, IBM, and H-P, keeping them from marketing products that used chips from rival AMD. Intel threatened to "derail" their technology development or "pull funding for joint projects" if they chose AMD chips.

Cuomo was seeking both penalties for Intel's behaviour and the recovery of monetary damages to state authorities and consumers.