UPDATE 1-Cavium Networks to buy MontaVista Software for $50 mln

* Says deal to increase software and services revenue

* Deal to add to adjusted earnings in 2010 and beyond

Nov 10 (Reuters) - Chipmaker Cavium Networks Inc (CAVM.O) agreed to acquire MontaVista Software for $50 million in cash and stock, to expand into embedded Linux support and services.

Cavium, whose chips are used in the networking, communications, storage and security industries, will pay about $16 million in cash and $34 million in stock.

The deal, which is expected to close in December, is expected to significantly increase Cavium's software and services revenue, and add to gross margin and adjusted earnings in 2010 and beyond, the company said.

MontaVista offers embedded Linux operating systems, virtualization, development tools and professional services to customers such as Cisco Systems Inc (CSCO.O), Alcatel-Lucent (ALUA.PA), Motorola Inc (MOT.N), Samsung Electronics (005930.KS) and Fujitsu Ltd (6702.T).

The demand for Linux operating systems in embedded networking, wireless, consumer electronics, mobile devices and storage is on the rise, Cavium said.

Shares of Mountain View, California-based Cavium closed at $19.59 Tuesday on Nasdaq. (Reporting by Manasi Phadke in Bangalore; Editing by Anne Pallivathuckal)