SAN FRANCISCO - Micron Technology Inc said it is acquiring privately held Numonyx Holdings B.V. on Tuesday in an all-stock deal valued at about $1.27 billion.

Numonyx is the world's No. 3 maker of flash-type memory chips, formed last year using memory chip assets from STMicroelectronics N.V. and Intel Corp, specializing in cellphone memory.

Daewoo Securities analyst James Song said that because Hynix Semiconductor already has a relationship with Numonyx, Micron's takeover of Numonyx could actually help their strategic relationship catch up with bigger rivals South Korea's Samsung and Japan's Toshiba and boost market share.

Under the agreement, Micron will issue 140 million Micron common shares to Numonyx shareholders, Intel, STMicroelectronics, and Francisco Partners.

Up to 10 million additional Micron common shares could be issued based on other factors including the volume weighted average of the price of Micron shares.

STMicro said in a statement it will net around $527 million worth of Micron shares from the deal.

Micron expects the deal to add to its earnings on a non-GAAP basis, starting in fiscal 2011.

On a conference call with investors, Micron Chief Executive Steve Appleton said the deal helps further diversify Micron's business amid the growing mobile device market as smartphone memory needs grow, and lower-end cellphones with smaller memory become more ubiquitous in the developing world.

We think we will clearly be the second-largest producer of memory. Obviously Samsung's still very strong, but we will start differentiating ourselves even more from the rest of those in the industry, he said.

Flash memory is used in a range of products including smartphones, gaming devices and digital music players.

Numonyx specializes in cellphone memory, and became a leader in a type of memory called NOR, which is used for storing code that devices run on.

Numonyx like Samsung and Toshiba has struggled over the past two years during one of the worst downturns on record for the highly cyclical memory chip sector.

But Numonyx told Reuters in November that it was on its way to profitability.

Micron has a separate joint venture with Intel in the NAND flash market.

Micron shares had closed up 1.9 percent at $9.08 on Nasdaq before the deal was announced.

(Reporting by Ian Sherr and Gabe Madway in San Francisco, and Miyoung Kim in Seoul; Editing by Gary Hill)

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