In a $1.6 billion Silicon Valley special, two behemoths of the chip industry, Cypress Semiconductor (CY) and Spansion (CODE), will merge under the Cypress banner in an all-stock deal that will end up with investors in both companies owning half of the new entity.

Spansion, spun off from AMD (AMD) as an independent company nine years ago, focuses on flash memory, microcontrollers and embedded systems, and, at $972 million in annual sales, is the larger of the two compared to Cypress’ $723 million in yearly revenue. Spansion shareholders will receive about 2.5 Cypress shares for each one currently owned.

The principals valued the deal at some $4 billion with the combined companies expected to generate about $2 billion in annual revenue and achieve savings of $135 million yearly within three years, officials said. The deal will be accretive to Cypress’ non-GAAP earnings within a year after the transaction closes, according to the companies.

Stockholders of both companies still have to approve the deal, which will be reviewed by regulators in the United States, Germany and China. Cypress and Spansion expect the transaction to close in the first half of 2015.

“This merger represents the combination of two smart, profitable, passionately entrepreneurial companies that are No. 1 in their respective memory markets and have successfully diversified into embedded processing,” said T.J. Rodgers, Cypress’s founding president and chief executive, in a statement.

“Our combined company will be a leading provider of embedded MCUs and specialized memories,” he said. “We will also have extraordinary opportunities for EPS accretion due to the synergy in virtually every area of our enterprises.”

The post-merger Cypress will have an eight-person board of directors consisting of four Cypress directors, including T.J. Rodgers and Eric Benhamou, and four Spansion directors, including Spansion chief executive John Kispert and Spansion chairman Ray Bingham, who will serve as the combined company’s non-executive chairman.

In Silicon Valley’s semiconductor segment, Spansion ranks as the 17th largest company and Cypress the 18th largest, based on 2013 revenues, according to the San Jose Mercury News. Overall in the tech industry, Spansion ranks 57th and Cypress 66th in size, the newspaper said.

“Bringing together these high-performing organizations creates operating efficiencies and economies of scale, and will deliver maximum value for our shareholders, new opportunities for employees and an improved experience for our customers,” said Kispert.

“With unparalleled expertise, global reach in markets like Japan and market-leading products for automotive, IoT, industrial and communications markets, the new company is well positioned to deliver best-of-breed solutions and execute on our long-term vision of adding value through embedded system-on-chip solutions,” he said.