Doug Freedman, of American Technology Research, says the due diligence process is already at an advanced stage and an announcement may be made "in the near future."

Freedman has already alluded to a possible ST/ Intel tie up that would create a company with annual revenues of about $3 billion, and the analyst suggests any deal would be struck at the annual sales level.

Intel itself said in May this year that it would bring its NOR flash memory fabs and memory process technology development effort within its flash memory group in a reorganization of those activities. It denied any speculation that it was considering selling or spinning off the NOR activity.

Any deal to exit the NOR flash business would boost Intel's EPS by $0.02/quarter, according to Freedman. He suggests the operation has been losing an average of $120 million each quarter during the year.

There is a significant amount of strategic value in the deal, Freedman suggests. The chip makers have complementary NOR products that span from low- to high-density devices based on floating-gate technology. There is also a significant amount of engineering and product compatibility between both companies.

Indeed Intel and ST announced a common platform initiative last year for NOR Flash designs in handsets. This enables both companies to separately design and build compatible NOR Flash products and act as a "second source".

Intel's recently announced 1Gbit 65-nm StrataFlash devices are based on this collaboration.

Freedman suggests Intel's NOR fabs in Ireland and Israel could be included in the deal. And he notes that both ST and Intel have been separately developing phase change memory technology which is a seen as a possible future replacement for code Flash, although it is unlikely that products will arrive before 2009.

The analyst maintains that even though the cash value to Intel from any deal would be small, the company would benefit from reducing headcount by approximately 5,000 and separate a low-profitability business that has not been a primary objective over the last couple of years.

He adds: "We had recently heard that Intel may lose a significant handset customer for NOR Flash in '2007 due to weak performance and power characteristics from certain products. This may also have been a worry for ST due to the similarity in products. As a private company the combined Intel / ST NOR entity would be better situated to rationalize the business, refocus product offerings and re-emerge as a stronger stand-alone competitor for Spansion."