The proposed acquisition follows an agreement between the two companies last year under which San Jose, California-based Cadence agreed to resell Ambit's BuildGates synthesis product used in the so-called system-on-a-chip technology.

With advances in microchip technology, semiconductor makers can now combine the functions previously performed by many chips onto fewer ones, cutting costs. That means the software used to create the intricate chip designs must become more powerful and robust.

"The (software) tools are running out of speed and steam," said Jack Harding, chief executive of Cadence on a conference call with reporters, in explaining why Cadence and Ambit agreed to the deal.

Cadence, which already had about a 2-per cent stake in the four-year-old Ambit, saidthat by adding the 100-employee company it will have the most comprehensive set of software tools to design system-on-a-chip solutions for customers, such as speciality-chip maker LSI Logic Corp.

Ambit's BuildGates product can handle extremely large and complex designs, Cadence said. System-on-a-chip solutions now have as many 50 million gates, or transistors, and require heavy-duty software to design them.

The acquisition is Cadence's second largest, a company spokesman said. Cadence has about 4,400 employees and had 1997 revenue of $916 million. The deal was announced after the close of regular trading. Cadence shares rose $1.63 to $22.50.

Cadence said it will take an unspecified charge in the current quarter associated with the purchase of Santa Clara, California-based Ambit.

Ambit's revenue in 1998 will be about $25 million.

The acquisition requires clearance from US antitrust authorities, which normally takes 30 to 60 days, Cadence said. The company also said the purchase, when complete, wouldadd immediately to Cadence's earnings.