The contraction of the semiconductor industry continued with embedded chip and flash memory makers Cypress Semiconductor and Spansion announcing a merger plan worth $4 billion.
Both companies make flash memory and low-power circuits used in industrial equipment, medical instruments, smart devices and cars. For example, Spansion's microcontroller units are used in automotive braking systems.
The merger makes sense with fast growth in the Internet of Things market, where industrial equipment with connectivity features could put the companies' products in high demand, said Jim McGregor, principal analyst at Tirias Research.
The combined company could go after markets like industrial automation, smart cities and smart devices, McGregor said.
"Those are markets where you can carve out a niche without taking on the Qualcomms and Intels," McGregor said. "I still see them as being a niche entity, but they are looking at intellectual property that will make them valuable."
The combined company will have in-house wireless capabilities, which are key for data transfer between IoT devices. Both the companies also specialize in NOR and SRAM memory, which are used in industrial IoT equipment.
"Having the memory capability in-house is going to be a potential benefit," McGregor said. "We have only a handful of memory manufacturers left."
Spansion, which was a spin-off of Advanced Micro Devices, last year bought Fujitsu's microcontroller business and is doing interesting work in energy harvesting.
The combined company will compete with Freescale, Atmel, STMicroelectronics and Texas Instruments. Freescale has in-house memory assets, while TI has a strong portfolio in analog and digital circuitry.
Both companies are based in Silicon Valley. They say the merger could create a company with $2 billion in annual revenue. The deal will close in the first half of next year, the companies said in a joint statement.