Intel and Micron Technology said on Monday they have agreed to form a new company to produce NAND flash memory chips for use in consumer electronics. Called IM Flash Technologies, the company would combine Micron's strengths in the NAND market with Intel's experience in multi-level cell technology.

One of the company's first customers will be Apple, who plans to pay $250 million to both Intel and Micron to secure a supply of flash chips for its popular iPod music players through the year 2010.

The deal also means yet more cooperation between the Macintosh maker and Intel. Earlier this year, Apple announced that it would switch to Intel processors beginning in 2006. The company previously utilized Power PC chips.

Both Intel and Micron said they would contribute $1.2 billion each to launch the joint venture, and have pledged about $1.4 billion more over the next three years to continue to grow the business. Micron would be the controlling stakeholder with 51 percent of the company.

"The creation of this new company supports Intel's intent to maintain its industry-leading position in nonvolatile memory and enables us to rapidly enter a fast-growing portion of the flash market segment," Intel president and CEO Paul Otellini said in a statement.

The new company expects to begin production of chips in early 2006.

In a separate flash-related announcement, Apple detailed several long-term agreements with other manufacturers. As well as continuing its agreement with current flash providers Samsung and Toshiba, the Cupertino company also has inked deals with Hynix to provide memory through the end of the decade.

Altogether, Apple will prepay these companies a total of $1.25 billion over the next three months. The company did not specify how this purchase would affect its financial outlook for the next two quarters when the charge would take place.

However, it appears any short term hit on the company's financial outlook could have longer-term benefits for Apple when it comes to sales. "We want to be able to produce as many of our wildly popular iPods as the market demands," said Apple CEO Steve Jobs.