NEW YORK (TheStreet) --Avago Technologies' (AVGO) agreement to buy Broadcom (BRCM) for $37 billion, the largest semiconductor deal so far, shows the race for dominance in Internet-connected smart devices is heating up.
Under the terms of the agreement, Avago will acquire Broadcom for $17 billion in cash and the economic equivalent of approximately 140 million Avago ordinary shares, valued at $20 billion as of Wednesday. As a result, Broadcom shareholders will own 32% of the combined company.
A purchase of Broadcom by Avago makes sense, given the profileration of connected devices, especially as the Internet of Things (IoT), where everything from refrigerators to microwaves to ovens becomes connected to the Internet.
The combined company will have annual revenues of approximately $15 billion, both Avago and Broadcom said in a statement. The merger will allow the combined company to better compete for space inside devices like Apple's (AAPL) iPhone, iPad, Samsung (SSNLF) Galaxy smartphones and other connected devices.
A teardown of the iPhone 6 showed that both Avago and Broadcom both offer components to the world's best selling smartphone. Avago is offering the Avago A8020 High Band PAD, Avago A8010 Ultra High Band PA + FBARs. Broadcom is supplying the BCM5976 Touchscreen Controller.
The deal follows a recent wave of consolidation in the semiconductor space, as more devices become connected to the Internet.
Freescale Semiconductor (FSL) merged with NXP Semiconductor (NXPI) in March, while Cypress Semiconductor (CY) finalized its deal with Spansion in March. Last year, TriQuint and RF Micro Devices combined to form Qorvo (QRVO), also a maker of chipsets for smart devices.