Compaq is back at the negotiating table with Micron Electronics, the fast-growing US direct vendor.
In April, Idaho-based Micron confirmed it had received an approach from Compaq. But talks collapsed after the two sides failed to agree on a price.
They are now reported to be very close to a deal, according to US reports.
Micron's turnover is running at more than $1.5 billion a year. But it has stumbled in recent months. In May, The company warned that Q3 sales would be 10 per cent lower and margins would two to three points worse than the previous quarter. Start-up costs for its international operations, particularly in Japan, were also higher than expected.
US investment analysts blamed the deterioration in Micron's position on fiercer competition from Dell and Gateway.
Compaq is keen to acquire a direct vendor. Compaq tried last month to buy Gateway for $7 billion, but it could not persuade majority shareholder and founder Ted Waitt to sell.
Compaq currently sells more than 90 per cent of its products through computer dealers. It reckons a direct sales arm would enable it to reduce inventory costs, making it more competitive against its arch-rival Dell.
Micron is likely to stay in Idaho if it is acquired, according to local newspaper, The Idaho Statesman. And Compaq is likely to operate the company at arms length. It already operates a direct sales operation in the US, but this irritated many computer dealers.
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