Micron ( MU - Get Report) is moving closer to acquiring troubled memory chip rival Qimonda ( QI), industry sources say.

Gregory Wong, a memory analyst with Forward Insights, says his industry contracts have told him it's effectively a done deal.

The parties "meet on all the major issues," although the transaction has not yet been finalized, he said.

Reports that the companies were in merger talks surfaced nearly a month ago that a deal may be close at hand.

On Monday, American Technology Research analyst Doug Freedman wrote in a note that an acquisition by Micron now appears likely, strengthening Micron's ability to control supply and intellectual property in the memory business and positioning Micron to become one of the two memory firms, alongside Samsung, to survive the current market downturn.

Qimonda is a subsidiary of German chipmaker Infineon Technologies ( IFX), which is seeking to unload its 77% stake in the company. In July, Infineon re-classified Qimonda as a "discontinued operation" on its financial statement.

Micron spokesperson Dan Francisco said the company does not comment on rumor or conjecture. An Infineon spokesman said he had "no information" about any deal, and a Qimonda representative could not be reached for comment.

Qimonda has lost roughly $2.3 billion so far this year, as a severe oversupply of DRAM memory chips has compressed prices for its products. Shares of Qimonda are down 79% from their 52-week high of $11.50, leaving Qimonda's market cap at just north of $700 million.

That low valuation has sparked interest in the company's assets, particularly its network of fabs -- chip manufacturing facilities which typically cost $1 billion or more to build. Qimonda currently owns three chip fabrication facilities as well as a joint-venture that entitles it to half the output of another fab.

As makers of DRAM memory and flash memory chips suffer through one of the industry's worst downturns in years, the market is ripe for consolidation.

Last week Samsung revealed that it has offered $26 a share to acquire flash-memory maker SanDisk ( SNDK), an offer that SanDisk rejected.

Uche Orji, a semiconductor analyst at UBS, says that acquiring Qimonda would give Micron an important size advantage in the DRAM business.

After a visit last week to Asia, home of many of the big memory firms, Orji says he came away more convinced of the deal's likelihood, which he now reckons has a 50% chance of going through.

The big question, he says, is how Micron will pay for Qimonda. Cheap as Qimonda is, it won't be easy for Micron to find financing for such a deal given the credit market's current tightness. Micron has $1.5 billion in cash, and roughly $2.2 billion in long term debt.

"If they can find the money somehow, and do this deal, it will be a phenomenal deal for them four years out," says Orji.

In the near term however, Orji says an acquisition could negatively impact Micron's earnings, prompting him to cut his rating on Micron from a Buy to a Neutral.

Freedman, of American Technology Research, believes Micron could employ a creative structure to finance the deal, allowing Micron to pay as little as $350 million upfront, while funding the rest with cash flow from the acquired assets.

Shares of Micron were down 7%, or 34 cents, in midday trading Monday. Qimonda's stock was off 5.8%, or 14 cents, at $2.28.