The deal is related to the joint-venture company the two chip-makers established last year - IM Flash Technologies.

The company is aimed at putting Intel and Micron in the thick of the fastest growing segment of the chip industry, the $13bn NAND flash memory business. The facility officially opened in January.

The industry is currently dominated by Samsung Electronics, and Toshiba.

The high storage capacity chips have gained popularity because they retain data even after power has been shut off, making them ideal for storage cards used in digital cameras and mobile phones, as well as digital music players.

The new venture will operate out of Micron-owned and -operated facilities for the next decade, Micron says. IM Flash has currently leased half of Micron's chip factory in Manassas, Virginia.

It will buy and install its own production equipment, but the machinery will be operated and maintained by Micron. The company will charge IM Flash a fee for operating and maintaining the equipment, and sell chips to IM Flash "at prices equal to the company's variable cost to manufacture," Micron says.

Micron will also provide IM Flash with chips from a facility in Boise, Idaho, for a five-year period.

Micron is one of the world's largest dynamic RAM (DRAM) makers. Micron joined with Intel last year to form IM Flash in order to break into the NAND flash memory chip market. At the time the joint venture was announced, the companies also revealed their first major customer, Apple Computer.

The maker of the world's most popular digital music player, the iPod, entered into a NAND supply agreement with IM Flash that extends to December 31, 2010. Apple made a prepayment of $250m to the company during the first three months of this year, Micron says.

The NAND venture did little to boost Micron during its fiscal second quarter, which ended on March 2. The company's sales declined to $1,2bn from $1,3bn during the same period a year ago. But it did post a gain in its net profit, which rose to $193m from $117,9m last year.

The company blamed falling prices for DRAM memory chips for its sales decline, but was able to offset part of the fall by reducing production costs and making more higher margin chips, including complementary metal oxide semiconductor (CMOS) image sensors, which are used in digital cameras.