Intel Corp. (INTC) and Micron Technology Inc. (MU) Monday said they would form a venture to make flash memory for popular consumer electronics products such as digital cameras, mobile phones and the Apple iPod.
Intel and Micron also said Apple Computer (AAPL) would pay each company $250 million for a "significant portion" of their share of the venture's output.
Each company will contribute about $1.2 billion in cash, notes and other assets to form the company, dubbed IM Flash Technologies LLC. Intel and Micron also plan to pay an additional $1.4 billion each into the company over the next three years.
Micron will own 51 percent of the new company, and will consolidate financial results on its balance sheet.
IM Flash Technologies will produce NAND flash memory, which companies use in consumer electronics products, as well as removable data storage and handheld communications devices.
The announcement comes as Apple Monday said it would prepay $1.25 billion in the next three months as part of a deal to stock flash memory components used in its iPod digital music and video players.
In addition to Intel and Micron, Apple made deals for a supply of flash memory chips and components through 2010 with Hynix, Samsung Electronics and Toshiba Corp.
"It sounds like it is a new company that is going to do other things, but the first and largest customer is Apple, and it is likely to be the largest customer for a while," said Eric Ross, an analyst at ThinkEquity Partners.
Micron benefits from the deal because it can take advantage of Intel's existing relationship with Apple, said analyst John Lau at Jefferies & Co. Intel, meanwhile, can take advantage of Micron's manufacturing centers.
Micron Chief Executive Steve Appleton, amid speculation of a tie-up with Intel, told a Reuters Summit Nov. 2 that the company saw partnerships as a key strategy to improve performance.
The computer industry would move in coming years to using flash memory instead of hard disk drives for primary storage devices, Appleton said.
Surging flash memory sales have helped Micron's financial performance. Appleton said he expects flash memory to replace disk drives in notebook computers within five years as prices decline.
That would bring dramatic increases in battery-powered computer operation as flash memory, with no moving parts, uses far less energy than hard drives with whirling disks.
Makers of mobile phones, music players and other portable digital devices are increasingly using NAND memory because it is suitable for pictures and music downloads and is cheaper than the technology used in Intel's flash memory, called NOR.
IM Flash will manufacture its products exclusively for Intel and Micron.
Initial production is expected to start in early 2006 at several Micron facilities, including one in Manassas, Virginia, that Micron said it is expanding.