In 1985 [[Intel]] introduced its 3rd generation [[x86]] microprocessors, the {{intel|80386}} family. AMD had a cross-licensing agreement with Intel which began in 1976, extended in 1982, but was terminated in 1987 - an agreement that AMD used to second-source Intel's {{intel|8086}}, {{intel|80186}}, and {{intel|80286}}. AMD's argument was that the 82 contract covered all derivatives of those chips while Intel claimed the contract only covered the {{intel|80286}} family and prior. While Intel refused to share their microcode for the 386, AMD used that agreement to obtain it anyway through reverse engineering. AMD started reverse engineering the chip in 1988. The team responsible for the project was headed by Ben Oliver's group in their new [[0.8 µm process]] in [[wikipedia:Austin, TX|Austin, TX]]. Development took around eighteen months with a working batch by the end of 1989. Expensive and lengthy litigation with Intel delayed their introduction to the market until 1991 which nullified Intel's attempt at trademarking the generic "386" chip designation. In January 1991<ref>{{apa mag|last=Linderholm|first=Owen|middle=|month=January|day=1|year=1991|title=AMD's Replicant 386: It's Alive, It's Compatible|magazine=Byte|issue=|pages=19|doi=|rmonth=May|rday=25|ryear=2015|url=}}</ref> AMD demonstrated their Am386DX model and in March they were officially introduced to market.  

The final result was a chip that had better over 20% better performance, ran cooler, and used less power. AMD started shipping 386 chips in March of 1991. Regardless of the delay, 386 was a major success for AMD ending up selling millions of Am386 chips, emerging as a serious contender to Intel. By the end of 1992, AMD was out-producing Intel with 9.5 million units sold, generating over half a billion dollars, and overtaking [[Motorola]] as the world's second largest microprocessor manufacturer<ref name="book1">{{cite book|last=Fletcher|first=Andrew|middle=E|year=2013|title=Profile of the Worldwide Semiconductor Industry - Market Prospects to 1997: Market Prospects to 1997|publisher=Elsevier|pages=96-97|isbn=9781483284859}}</ref>. That year AMD was accounted for around 60% of all 386s sold<ref name="book1" />.

From an architecture point of view, AMD's chips were identical to Intel's {{intel|80386|386}}s - pin-compatible and clock. The chips were capable of running [[OS/2]], [[MSDOS]], [[Unix]], [[Xenix]], and [[Windows]] without any compatibility problems. Byte Magazine own benchmarks of the Am386 in January of 1991 showed the identical-clock models had identical performance. Another unique feature that the Am386 brought about is true sleep mode (standby mode).

With a fully-static CMOS [[core]], the Am386 could be powered down to less than 1 milliamp. This feature was unique to AMD. Intel later introduced its own sleep mode version with a special ''i386SL'' model specifically for low-power sleep mode. Unfortunately this low power dissipation was not possible with Intel's design. Intel's own chip were only capable of going down to 60 mA (and 133 mA for the i386DX models). This alone became a big selling point for AMD for laptops and other mobile devices. The static core gave AMD's chip a few other advantages such as not requiring a separate static RAM chip to store machine state (e.g. [[register file]]) when in maximum saving during sleep mode. In addition to sleep mode, the Am386 was capable of being clocked down to as little as 4 kHz for ultra-low power, slow-speed standby modes. It was not possible to operate Intel's chips under 8 MHz.