Intel and STMicroelectronics have agreed to spin off their respective Flash memory businesses to form a new company. 

The new firm, which has yet to be named, will be based in Switzerland and employ roughly 8,000 people.

STMicroelectronics will assume a 48.6 per cent stake in the new company, while Intel will receive a 45.1 per cent. The remaining stake has been sold to equity firm Francisco Partners for $150m.

The company will manufacture Nor and Nand Flash memory chips for use as Flash memory in PCs and consumer devices.

Research firm iSuppli listed the combined market shares of Intel and STMicroelectronics at 37 per cent, which would place the new firm at the head of the market in front of Spansion. 

Mark DeVoss, a senior analyst at iSuppli, forecast that the new business will be successful as it combines the strengths of both companies.

"Intel seems to have a history of incubating memory technologies and then setting them by the wayside, because Intel is not really a memory company," he explained to vnunet.com. 

For STMicroelectronics, DeVoss said that simply making chips in a Nor market with shrinking profits was becoming too costly.

"With Nor, you have to invest in your future, and it takes profits. No one has made any money in the Nor Flash business since 2004," he said.

DeVoss suggested that the deal may have to do with an emerging technology that Intel and STMicroelectronics had been working on jointly.

Known as phase-change memory, the new chips are said to be as much as 1,000 times faster than current Nor chips.  

DeVoss said that if manufacturers are unable to scale Nor chips past the 45nm manufacturing process, phase change memory could become a viable replacement as early as 2010.

"They have hedged their bets on advancing phase change," said the analyst. " Conventional thinking is that 45nm is really pushing it, but I do not think anybody can really forecast for sure."

Along with new advances in a tight market, DeVoss predicts that the logistical concerns of merging two businesses to form a new entity will be tough.

The analyst pointed to Spansion which took almost 13 years to transition from being a joint venture of AMD and Fujitsu to a successful independent entity. 

DeVoss said that the merging of the US-based Intel and the Swiss-based STMicroelectronics into a new company will have to take place over a much shorter time.

Executives will also have to handle challenges ranging from adapting to new labour laws to reconciling differences in corporate philosophy.

"They also have to convince their customers that this is going to be a seamless, non-disruptive event," said DeVoss. "And that is going to be a challenge."