The two companies will now select the plant's site, and construction is expected to start in 2009 and production in 2010.
Both companies hope that the deal will solidify their positions in the memory market, and allow them to meet the anticipated future demand for Nand Flash memory.
Nand Flash is increasingly becoming the storage technology of choice for a growing number of consumer and computing devices.
Half of the new fab's production capacity will be allocated to the new joint venture. The remaining 50 per cent will be managed by Toshiba and half of the output will be provided to SanDisk on a committed foundry basis.
"Nand Flash memory is enjoying rapid growth and is expected to expand with new applications in coming years," said Shozo Saito, chief executive at Toshiba Semiconductor.
"The new fab will build on the strong record of success we have achieved with SanDisk in Flash memory product development and production, and further strengthen our partnership."
The parties will share wafer output and funding for the equipment. The agreement provides SanDisk with an option to convert its committed foundry capacity into the joint venture or to convert to a non-committed foundry arrangement.
Eli Harari, chairman and chief executive at SanDisk, explained that the deal would help SanDisk maintain its guaranteed 50 per cent of the capacity output while reducing its capital expenditure commitments for funding the new fab equipment.
"We believe this will allow us to meet our forecasted customer needs in 2010 and beyond, while freeing up cash flow for investments in new products and in growth markets," he said.
Toshiba and SanDisk expect to sign a definitive agreement later in 2008.
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