In a statement, Cavium Networks said that, according to the terms of the agreement, the company will pay MontaVista Software $16 million in cash, plus $34 million in Cavium’s stocks.

The sum of the stocks represents around 4% of outstanding shares of Cavium Networks, according to the company’s top executives.

The company intends to maintain MontaVista Software as a separate company, according to Syed Ali, president and chief executive officer of Cavium Networks. Accordingly, Cavium Networks shall maintain separate staffs in engineering and product-management department as well as in sales.

According to Syed Ali, software is becoming a “huge bottleneck” and that there has been an increase in demand for enhanced solutions from Cavium Networks. Customers of Cavium Networks, Ali added, want the company to provide them with a ‘one-stop shop’ for their requirements in both hardware and software.

The acquisition of MontaVista Software will enable Cavium Networks to “monetize design wins” through the sale of software tools ahead of the time when an end-product goes to market, which could take 2 years to 3 years, Syed Ali explained.

According to industry analysts, the Cavium Networks-MontaVista Software deal is somewhat similar to Intel Corporation’s acquisition of Wind River Systems Incorporated, the embedded-software specialist, for $884 million, earlier in 2009.