NEW YORK (TheStreet) --Avago Technologies' (AVGO) - Get Report 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) - Get Report 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) - Get Report in March, while Cypress Semiconductor (CY) - Get Report finalized its deal with Spansion in March. Last year, TriQuint and RF Micro Devices combined to form Qorvo (QRVO) - Get Report , also a maker of chipsets for smart devices.

Other potential acquisition targets include Skyworks Solutions (SWKS) - Get Report , Cirrus Logic (CRUS) - Get Report and InvenSense (INVN) , all which make chipsets that go inside the iPhone 6. Qualcomm may be pushed into making an acquisition to raise its profile, as it receives pressure from activist investor Jana Partners to boost its ailing share price.

Here's what The Street's Jim Cramer had to say about the Avago/Broadcom deal:

"They had to merge. They both risk being cut out of Samsung by Samsung's own devices and they need to offer a one-stop solution for Apple or Skyworks will eat their lunch."

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Irvine, Calif.-based Broadcom had been rumored to be an acquisition target for a few months, with talk heating up after Intel (INTC) - Get Report dropped its offer to buy Altera (ALTR) - Get Report a few weeks ago. Broadcom was mentioned as both a potential target for Intel, as well as Qualcomm QCOM, due to Broadcom's expertise in wireless networking chips.

In January, Broadcom CEO McGregor told TheStreet that Broadcom helps provide the infrastructure for the explosion of wearable devices.

"Broadcom makes the technology that enable these devices to get connected," McGregor said. "Whether it's Bluetooth, wireless LAN, NFC or Zigbee, or other tech, we do that and we're in a larger percentage of the devices out there, the watches and other devices, and we do that."

Avago clearly hopes to take advantage of Broadcom's technology with the merger.

"Today's announcement marks the combination of the unparalleled engineering prowess of Broadcom with Avago's heritage of technology from HP, AT&T, and LSI Logic, in a landmark transaction for the semiconductor industry," said Hock Tan, President and Chief Executive Officer of Avago in a statement.

Tan continued that the combination of the two companies will create a leader in the space thanks to the merger. "Avago has established a strong track record of successfully integrating companies onto its platform. Together with Broadcom, we intend to bring the combined company to a level of profitability consistent with Avago's long-term target model."

Following completion of the deal transaction, Tan will continue to serve as President and Chief Executive Officer of the combined company, which will adopt the name Broadcom Limited. Dr. Henry Samueli, who co-founded Broadcom along with Dr. Henry T. Nicolas, will join the board of the combined company as will another director from Broadcom. In addition, Dr. Samueli will be appointed Chief Technology Officer of the combined company and Dr. Nicholas will serve in a strategic advisory role.

There is no word on whether McGregor will have a role in the newly created company, known as Broadcom Limited.