Marvell Technology has bid about $6 billion for Cavium in a cash-and-stock deal that would create a chip maker to compete with Intel and other giants in the industry.
The potential deal extends a long-running consolidation for computer chip producers that are trying to grow so that they can better supply tech leaders such as Apple, Google and Samsung.
Last week, Qualcomm rejected an unsolicited, $103-billion buyout from Broadcom, saying the bid was too low.
Qualcomm last year said it would buy NXP Semiconductors for $38 billion. That deal remains under regulatory review. Avago Technologies purchased Broadcom for $37 billion in 2016.
Under the proposed deal announced Monday, Cavium shareholders will get $40 per share and 2.1757 Marvell common shares for each Cavium share they own.
Cavium Inc. stockholders are expected to own about 25% of the combined company.
Marvell Chief Executive Matt Murphy would lead the combined company, with Cavium co-founder and CEO Syed Ali serving as a strategic advisor and board member.
Cavium makes chips for wired and wireless tech products and is prominent in networking technology. Marvell makes application-specific chips and integrated circuits for data storage. The combined company would be able to trim costs and offer a more robust package to potential customers.
The stock price of Cavium, based in San Jose, surged nearly 11% on Monday. Shares of Marvell Technology Group Ltd., which has its U.S. headquarters in Santa Clara, Calif., rose 6%.
5 p.m.: This article has been updated with closing stock prices.
12:35 p.m.: This article was updated with additional details on the two chipmakers and morning stock gains.