Intel and STMicroelectronics entered into a definitive agreement to create a new independent semiconductor company from the key assets of businesses which last year generated approximately $3.6 billion in combined annual revenue.

The new company will be the world's largest maker of chips that store software in mobile phones.

The agreement, which includes a 150-million-dollar investment by Silicon Valley's Francisco Partners LP, will create a company with an estimated 3.6 billion dollars in annual sales, more than current market leader Spansion Inc, the companies said in a statement Tuesday.

“The new memory company will have the people, scale and technology leadership to meet the needs of customers requiring leading-edge products in this highly competitive marketplace,” said Paul Otellini, Intel president and CEO.

“From the outset, the company will be a leading supplier of flash memory solutions for wireless communications,” said Brian Harrison, named to become the CEO of the new company at the close of the transaction and currently vice president and general manager of Intel’s Flash Memory Group. “We will be able to offer customers complete solutions with NOR- and NAND-based technologies, which we believe will provide significant opportunities for growth and the potential to develop products for many new application areas and geographic regions.”

STMicro will hold a 48.6 per cent stake in the new operation and receive a 468-million-dollar payment, Intel will have 45.1 per cent stake and get 432 million dollars. Francisco Partners will own 6.3 per cent of the new company.

As part of the deal, the companies arranged a 1.3-billion-dollar loan to cover the payments for their assets and to be used toward working capital.

The new company will be headquartered in Switzerland and incorporated in the Netherlands with nine main research and manufacturing locations around the world and approximately 8,000 employees. The company will also benefit from a worldwide sales force.

Analysts welcomed the move as a way for Intel and STMicro to cut their exposure in the flash memory market, which has been hurt by competition and price cuts but is also expected to grab an ever larger market share from conventional disk drives.