Feb. 10 (Bloomberg) -- Micron Technology Inc., the biggest U.S. producer of computer memory, agreed to buy flash-chip maker Numonyx Holdings BV for about $1.27 billion to help it compete with Samsung Electronics Co.

Micron will issue 140 million shares to Numonyx investors - - Intel Corp., STMicroelectronics NV and Francisco Partners -- according to a statement yesterday. Boise, Idaho-based Micron will also give as many as 10 million additional shares to Numonyx shareholders if a decline in the stock price pares the deal’s payout.

The transaction vaults Micron into the market for Nor-type flash chips, which go into mobile phones. Chief Executive Officer Steve Appleton is using the acquisition to lessen the company’s dependence on personal-computer memory and step up competition with Samsung, which dominates the industry.

“Steve wants to make Micron like a Samsung, to be a one- stop shop for memory,” said Daniel Amir, a San Francisco-based analyst for Lazard Capital Markets. He recommends buying the stock.

Micron fell 46 cents, or 5.1 percent, to $8.62 at 9:47 a.m. in New York Stock Exchange trading. The shares had dropped 14 percent this year before today. Issuing 140 million shares would increase Micron’s outstanding stock by about 16 percent.

The deal “is somewhat dilutive for shareholders,” Amir said. “People view the Nor market as a non-growing market.”

Cash Flow

The acquisition will add to cash flow and profit, excluding some items, starting in fiscal 2011, Micron said. The company’s fiscal year ends in August. Numonyx will be debt-free when the transaction closes, which should happen in the next three to six months, Micron said.

The deal helps Micron break away from a pack of fellow memory companies, Appleton said. Samsung is the only company in the memory business that can match Micron’s breadth of products, he said.

“We think we will clearly be the second-largest maker of memory,” Appleton said on a conference call. “Samsung’s obviously still very strong, but we think we will start differentiating ourselves from the others.”

Numonyx, based in Rolle, Switzerland, posted sales of $550 million in its most recent quarter, Appleton said. While the deal will dilute Micron’s stock by about 15 percent, shareholders will get a revenue boost of about 30 percent, he said. Micron posted sales of $1.74 billion in its first quarter.

Chasing Samsung

Samsung, based in Suwon, South Korea, is the second-biggest producer of chips, behind Intel. In addition to making flash chips, Micron and Samsung also make dynamic random access memory, or DRAM, the main memory used in PCs. James Chung, a spokesman for Samsung, declined to comment.

Intel, which created Numonyx in 2008 by spinning off its Nor flash business into a joint venture with STMicroelectronics, had planned to sell shares in Numonyx to the public. The recession ended those plans, said Chuck Mulloy, a spokesman for Santa Clara, California-based Intel.

“The combination of the two companies will create a leading market participation in the memory space,” Mulloy said in an interview. “We had hoped for an IPO as a viable exit strategy.”

STMicroelectronics, Europe’s biggest chipmaker, expects to receive about 66.6 million Micron shares in the deal. After accounting for debt and other payments, the Geneva-based company expects to net about $280 million.

Paring Down

“The exit from the flash memory business, including the termination of our exposure to the guaranteed debt, is a further step in executing our strategy towards a focused and less capital-intensive business model,” Carlo Ferro, STMicroelectronics chief financial officer, said yesterday.

Francisco Partners, a private-equity firm based in San Francisco, didn’t answer a call seeking comment after business hours yesterday.

Numonyx currently operates a chipmaking venture with Hynix Semiconductor Inc. in China. In 2008, they extended the agreement. Park Seong Ae, a spokeswoman for Ichon, South Korea- based Hynix, declined to comment on yesterday’s deal.

Micron has been the most active acquirer in the memory-chip business. It built up its manufacturing by buying the memory operations of Texas Instruments Inc. in 1998. After trying and failing to buy Hynix in 2002, it acquired a plant from Toshiba Corp. later that year. Micron added memory-card maker Lexar Media in 2006, and then purchased a stake in competitor Inotera Memories Inc. in 2008.

Micron posted a profit of $204 million in its most recent quarter, the first since 2007. A memory-chip glut resulted in billion-dollar losses for the industry over the last three years.

Nor flash memory is used in mobile phones and handheld gadgets to store the programs that run the devices. Micron also makes Nand flash memory through a joint venture with Intel. That type of chip stores data in products such as Apple Inc.’s iPhone.