Europe's largest maker of consumer products, lighting and semiconductors, said late on Monday it had signed an initial agreement with AT&T Broadband to form a new business alliance. AT&T will begin supplying its U.S. consumers with Philips' boxes in 2001 with an initial volume set at one million units.

Philips, one of the world's top three set-top box producers and joint leader in Europe with Thomson Multimedia , previously decided to develop its market in the United States from scratch rather than buy a U.S. maker. It is believed to have looked into purchasing General Instruments, the U.S. maker that Motorola ended up acquiring.

Analysts said the deal announced on Monday was a demonstration of the success of such a strategy and suggested Philips may be eating into the market dominance of Motorola and Scientific America.

Neither company has said how much the deal is worth.

"It's a terrific order, firstly in terms of size," said Wouter de Ridder, analyst at Kempen and Co.

"The fact that it's a sale to a U.S.-based company is significant... It could be a signal to other customers," said Marc Kennis, analyst at Van Lanschot Bankiers.

By 1124 GMT, Philips shares, also buoyed by a rally of semiconductor stocks in the United States, were up 2.2 percent at 50.40 euros. The shares are 8.3 percent higher this week and 49 percent in the year-to-date.

Philips is steadily increasing its output and range of digital consumer products, ranging from DVD players, television sets and a variety of new audio players.