Intel and AMD are fierce competitors in the world of chipmaking, but in recent years they've taken the fight to the courtroom. AMD has sued Intel for antitrust violations (allegations that have been picked up by a number of governments), while Intel fired back by claiming that AMD had violated a licensing agreement for x86 technology. This morning, however, the two companies made a surprise announcement: they've reached an agreement that settles all legal issues between them.

The statement is short on information; both companies will flesh out the details during press/analyst calls later this morning. However, it does have a few eye-popping details, first and foremost among them a cash payment: Intel will be handing $1.25 billion over to AMD. The agreement also includes limits on Intel's business practices; these aren't specified in the statement, but undoubtedly limit the rebates and bulk buying agreements that Intel has used in the past to keep OEMs from jumping ship to AMD.

The two parties will also drop their patent dispute and commit to another five-year cross licensing agreement.

There's something in this for both parties. Intel was facing AMD suits both in the US and Japan, and AMD was filing complaints with just about any government that appeared willing to listen. This won't stop any government cases against Intel that are already in progress, and won't prevent any governments from investigating Intel on their own. But, without a major company pushing for these investigations, it's likely that Intel can start focusing on clearing out existing cases without the worry that new ones will continue to appear.

The business practices that Intel has agreed to avoid are undoubtedly the same ones that have been getting it in antitrust hot water lately, so they've probably been discontinued already. The formal agreement may help Intel argue that its misbehaving days are in the past, which can help with both settling existing cases and avoiding future ones. As for the cash, Intel has just demonstrated it can handle even larger payments (the EU hit them with a �1.5 billion fine) without missing a beat.

Given that Intel was unlikely to continue practices that were leading to massive fines anyway, AMD is primarily coming out of this with three things: vindication, reduced legal bills, and the cash. The latter two are what really matter, given that the company has been building up a hefty pile of debt in recent years. The company has $1.5 billion in cash on hand, and has recently gotten much closer to profitability (it's non-GAAP numbers actually show a profit), but its purchase of ATI and frequent reorganizations has left it with around $5 billion in debt to pay off. An extra $1.25 billion will go a long way towards assuring investors that it can continue to pay down this debt.

We'll update this story as warranted with more details from the calls this morning.