LSI Logic will buy Agere Systems for $4 billion in stock.

The resulting combined chip-making company will compete for greater share in markets such as hard disks and digital media players. LSI will trade stock worth $4 billion for Agere and cause LSI to double in size, growing to 9,100 employees and with an estimated $3.5 billion revenue.

LSI hopes to use the deal to extend its market in storage and consumer electronics by adding Agere's expertise in storage, mobility and networking, said LSI chief exec Abhi Talwalkar. Agere's top 10 customers are Apple, Cisco, Hitachi, Lucent, Maxtor, NEC, Nokia, Samsung, Seagate and Toshiba.

The two companies hope to save $125 million per year starting in 2008 through "increased efficiencies in manufacturing and operating expenses". They did not say whether that plan included layoffs.

LSI expects the transaction to close in early of 2007, pending the usual approval by regulators and shareholders.