By Cara Lombardo and Dana Cimilluca

Intel Corp. has reached a deal to sell its flash-memory manufacturing business to South Korea's SK Hynix Inc. for about $9 billion, in a move that would reorient the semiconductor giant away from an area of historical importance that has become increasingly challenged.

The Intel unit makes NAND flash memory products primarily used in devices such as hard drives, thumb drives and cameras. The U.S. chip maker has been weighing getting out of the business for some time, driven by sagging prices for flash memory.

Under the deal reported earlier Monday by The Wall Street Journal, SK Hynix plans to buy most of Intel's memory business, including the related memory manufacturing operations in Dalian, China, the companies said in a statement. Intel will keep its Optane line of memory products, an advanced type of storage used heavily in data centers.

The operations being acquired by SK Hynix generated about $2.8 billion in sales in the first six months of this year, the companies said. That represents the lion's share of Intel's overall memory sales, which totaled around $3 billion during that period.

The deal would make SK Hynix one of the world's largest NAND memory makers. SK Hynix and Intel's combined market share was more than 20% in the second quarter, according to Taiwan-based research firm TrendForce, trailing only South Korean giant Samsung Electronics Co., which held over 30% of the market.

While Intel is best known for making the central processing units at the heart of personal computers, the company has deep roots in the memory business. It started as a memory manufacturer in the late 1960s before stiff competition from Japan's burgeoning electronics industry in the 1980s led the company to change course.

The market for memory chips slumped in 2018 amid an oversupply of the devices, though it began to recover late last year. Analysts expect the market for NAND devices to remain strong in the coming years amid a surge in data storage.

Nonetheless, Intel Chief Executive Bob Swan said in April that the company had to generate more attractive returns from the NAND business and suggested it could enter into a "partnership" to make that happen.

George Davis, the California-based company's chief financial officer, said in March that while the flash memory business showed promise, the company hadn't been able to generate the profits it wanted.

Intel said it would invest the deal's proceeds in building its presence in fast-growing areas like artificial intelligence and 5G networking. "This transaction will allow us to further prioritize our investments in differentiated technology where we can play a bigger role in the success of our customers and deliver attractive returns to our stockholders," Mr. Swan said in a statement.

Intel already pared down its involvement in memory manufacturing in January when Micron Technology Inc. bought out Intel's share in a joint venture for about $1.5 billion. That venture was focused on an advanced memory technology called 3D XPoint.

The companies aim to get regulatory approvals for the transaction late next year, which would trigger a $7 billion payment. The remaining $2 billion would follow at final closing expected in 2025. Intel is to continue to make memory at the plant until the final closing.

Intel, which has a market value of roughly $230 billion, has been under increasing pressure as smaller rivals gain market share. Its stock is down about 10% this year, compared with a roughly 30% rise in the PHLX Semiconductor index. The shares dropped more than 15% when Intel in July indicated that second-half results would be weaker than expected and revealed further delays in the rollout of its superfast seven-nanometer chip technology, which underlies future generations of central processing units.

While Intel has struggled to move into mass production of its most advanced chips, rival Advanced Micro Devices Inc.'s market share in personal computer CPUs climbed above 17% in the first quarter, more than doubling from five years earlier, according to Mercury Research. Intel holds almost all of the remaining market share.

Intel is set to report its third-quarter earnings Thursday afternoon.

The market for memory chips has been shaken by U.S. efforts to curb the rise of China's tech industry and restrict exports to Chinese firms such as Huawei Technologies Co., the country's leading telecom equipment maker. Japanese memory-chip maker Kioxia Holdings Corp., owned by a consortium led by private-equity firm Bain Capital, last month delayed one of this year's most anticipated public offerings because of the situation.

Intel's advanced flash memory, referred to as 3D NAND because it has multiple layers of memory cells stacked on top of each other, has been produced for the past five years in Dalian, a port city on the Liaodong Peninsula just west of the Korean Peninsula.

That factory is Intel's only major chip-manufacturing site in China and its sale to SK Hynix would mark a serious reduction of the company's presence there.

The U.S. has been ratcheting up pressure on Chinese chip-making recently, including by requiring companies to obtain licenses before exporting some technology to China's most advanced chip maker, Semiconductor Manufacturing International Corp.

Consolidation has swept through the semiconductor sector as industry players seek scale and expand their product portfolios to support the increasing number of everyday items that are connected to the internet.

Analog Devices Inc. in July agreed to pay more than $20 billion for Maxim Integrated Products Inc., and Nvidia Corp. in September agreed to pay $40 billion for Arm Holdings, the British chip designer backed by SoftBank Group Corp.

AMD is in talks to buy rival chip maker Xilinx Inc., The Wall Street Journal reported earlier this month. The two parties are discussing a deal that could come together this week or next, assuming talks don't fall apart, according to people familiar with the matter.

Some companies are looking to slim down and narrow their focus. Broadcom Inc. last year explored a sale of its radio-frequency, or RF unit, a segment of its wireless-chip business that makes filters used in cellphones to clarify signals. It later decided against selling it.

BofA Securities served as financial adviser to Intel; Munger, Tolles & Olson LLP; Wilmer Cutler Pickering Hale and Dorr LLP and Linklaters LLP, while Bae, Kim & Lee LLC served as its legal counsel. Citi served as financial adviser to SK Hynix and Skadden, Arps, Slate, Meagher & Flom LLP, and K&C and Fangda Partners served as its legal counsel.

--Asa Fitch contributed to this article.

Write to Cara Lombardo at cara.lombardo@wsj.com and Dana Cimilluca at dana.cimilluca@wsj.com

(END) Dow Jones Newswires

10-19-20 2236ET