Intel has had trouble cracking new markets as CEO Paul Otellini and his predecessor, Craig Barrett, sought to move beyond personal-computer chips. Intel added processors that place mobile phone calls, and after five years of struggling, won its first order for a new model of the chips this year.

Micron is taking on the manufacturing because the company already makes some products, Appleton said. The alliance will help to grow the business quicker than it would have been able to alone. Intel will contribute to design and manufacturing of future products, he said.

"The concern that we had was that in terms of capacity and market share we were quite a ways behind a couple of other players," Appleton said. "It made a lot of sense for us to do something together. We think we will be a significant player within one or two years."

Apple reached the long-term chip agreements to make sure it can produce enough of its best-selling iPods to meet demand, CEO Steve Jobs said in a prepared statement. IPod shipments rose to a record 6.45 million units last quarter, and the company said parts shortages curbed its ability to build enough of the new iPod Nano to meet consumer demand.

Most of the newer iPod models, such as the Shuffle and Nano, use flash instead of a hard drive.

"Shortages would kill their Nano sales, and they can't allow that to happen," said John Lau, an analyst at Jefferies & Co.

"This is a nice way into consumer electronics for Intel, and they're basically saying to Apple, 'We'd love to help you with all those iPods you're selling,' " said Daniel Morgan, who helps manage $5.45 billion including Intel shares at Synovus Investment Advisors in St. Petersburg, Fla. "Once Intel really revs up on something, they can blow anyone out of the water."

Shares of Intel, based in Santa Clara, Calif., fell 5 cents to close at $25.25 in Monday trading on the Nasdaq Stock Market, while Micron's stock rose 2 cents to close at $14.20 on the New York Stock Exchange.

Shares of Apple rose 40 cents to close at $64.96 on the Nasdaq.

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Contributing: Associated Press; Bloomberg News

E-mail: bwallace@desnews.com