Under the terms of the deal, which is expected to close in December, Cavium (Mountain View, Calif.) will pay $16 million in cash and $34 million in Cavium stock to acquire MontaVista, the company said. The amount of stock represents about 4 percent of Cavium's outstanding shares, according to company executives.

Cavium plans to maintain MontaVista as a separate company, according to Syed Ali, Cavium president and CEO. The company will maintain separate sales, engineering and product management staffs, he said in an analyst conference call following the acquisition announcement.

Ali said software is becoming a bigger bottleneck and that Cavium is seeing an increase in demand for more complete solutions. Customers are demanding that Cavium provide a "one stop shop" for their hardware and software needs, Ali said.

Ali noted that the acquisition will allow Cavium to monetize design wins through the sale of software tools prior to the time when an end product goes to market, which can be two to three years down the road.

The Cavium-MontaVista deal is reminiscent of Intel Corp.'s acquisition of embedded software specialist Wind River Systems Inc. for $884 million earlier this year.