Dialog sells chips used to manage power in high-end smartphones from Apple Inc. and others. Atmel, based in San Jose, Calif., focuses on microcontrollers that provide computing power for many kinds of consumer and business hardware.
Jalal Bagherli, Dialog's chief executive, said the deal will help the company reduce its dependence on a few smartphone makers and acquiring Atmel's customer base and line of products will make Dialog a major player in chips for connected cars, wearable devices and other networked IoT devices.
"We won the second round of bidding," said Bagherli.
The transaction continues a string of combinations in the semiconductor business, where stock prices have been held down by slowing growth and companies see advantages in merging product lines and sales forces.
In May Avago Technologies Ltd. agreed to buy Broadcom Corp. for $37 billion with Intel Corp. declaring a $16.7 billion deal to buy Altera Corp.
Dialog, based near London in Reading, traces its lineage to 1981 and the European operations of a U.S. company called International Microelectronic Products Inc. Those operations were acquired by auto maker Daimler-Benz AG and later spun out, with Dialog going public on the Frankfurt exchange in 1999.
Atmel, founded in 1984, achieves about 70% of the company's revenue from microcontrollers which are used in applications that include smartwatches, fitness devices and Arduino circuit boards. Atmel also sells chips to help manage sensors and touch screens in smartphones and tablets.