Under the terms of the agreement, San Diego-based Applied Micro Circuits will issue 0.62 shares of its common stock for each common share of MMC stock. The transaction is expected to close in the fourth quarter, the company said.
Based in Sunnyvale, Calif., MMC builds computer network processors and communications management technology. Applied Micro Circuits makes high-bandwidth circuits for high-speed traffic on fiber-optic networks.
The merger is part of a growing trend of consolidation in the semiconductor industry.
In June, Dallas-based semiconductor giant Texas Instruments acquired Burr-Brown, a manufacturer of analog and mixed-signal integrated circuits, for $7.6 billion.
Applied Micro Circuits executives said the pending merger is the next logical step in the company's aim to provide a complete line of products for the optical networking market and to expand into new markets for high-speed communications.
The optical networking sector of the communications equipment market is among the hottest industries in technology, as carriers scramble to build new optical Internet networks to carry voice and data at high speeds and low costs. MMC specializes in developing integrated circuit products for optical networks.
"This powerful merger of two market leaders--MMC and AMCC--creates tremendous synergy and opportunities for the combined companies in both the optical networking market and many other emerging platforms at the WAN edge," Dave Rickey, chief executive officer of Applied Micro Circuits, said in a statement.
MMC chief executive Doug Spreng will report to Rickey and join the Applied Micro Circuits board of directors upon completion of the merger.
"AMCC is the ideal partner for us," Spreng said in a statement. "We share a common vision and commitment to delivering high-performance communications solutions that provide true value to our customers."
MMC, which employs 200 people worldwide, has offices in Raleigh, N.C.; Chelmsford, Mass.; Netanya, Israel; and the United Kingdom.
Although both companies' boards have approved the agreement, the completion of the transaction is subject to customary closing conditions, including the approval of MMC's stockholders.