Intel and STMicroelectronics, the technology groups, are set to create a new $3 billion company that will make flash memory chips used in devices including digital cameras and music players.

The move comes as Intel strives to slim down its business and boost margins amid fierce competition from smaller rival AMD. The group’s flash memory unit has recently posted loses, weighing on the results of the world’s largest computer processor maker.

The consolidation, which will create a company with annual sales of about $3.6 billion, overtaking the current market leader Spansion, is also likely to stabilise the notoriously volatile prices of flash memory chips, analysts said.

Geneva-based STMicroelectronics and California-based Intel, will both sell flash memory assets and resources to the new group. In exchange, Intel will receive a 45.1 per cent stake and a $432 million in cash while STMicroelectronics will take a 48.6 per cent stake and $468 million.

In addition, Francisco Partners, the private equity group, is to invest $150 million cash for convertible preferred stock representing a 6.3 per cent stake in the company.

The new business will be based in Geneva and led by Brian Harrison, currently vice president and general manager of Intel's flash memory group. He said today that the enterprise value (the value including debt) of the new entity will be about $3 billion.

The companies said they arranged for commitments for a $1.3 billion term loan and $250 million revolving credit facility.

Shares in Intel were up 12 cents to $22.75, while STM's stock was up 39 cents, to $20.27.

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