Infineon will supply parts for Microsoft's Xbox 360 games console.
The deal is a breakthrough for Infineon, Europe's biggest chipmaker, after memory-chip industry leader Samsung was sole supplier for Microsoft's current Xbox version.
Microsoft is the second-largest player in the global games-console market behind Sony, whose PlayStation2 dominates the industry.
Although analysts estimate the deal will bring in a modest €100 million to €150 million annually for Infineon - around 2 per cent of total sales - the news cheered investors keen to see a move away from low-margin DRAM chips.
This morning, Infineon's shares were up 1.8 per cent to €7.85, the top gainer in a flat blue-chip DAX index. They had earlier risen as high as €7.93.
Infineon did not give financial details of the deal, under which it will supply key accessory components for the Xbox 360. Microsoft has yet to say who will supply the consoles' core DRAM memory chips - for which Infineon could also be in the running.