Qualcomm Inc. ( QCOM - Analyst Report ) , the leading chipset maker for mobile handsets worldwide, plans to acquire the video processing assets of Integrated Device Technology, Inc. ( IDTI - Snapshot Report ) for an undisclosed amount. The transaction is expected to be completed by the end of this month.

The acquisition will enable Integrated Device Technology to sell its Hollywood Quality Video (HQV) and Frame Rate Conversion (FRC) Video Processing assets to Qualcomm.

With the growing popularity of smartphones and tablets coupled with aggressive roll outs of 3G/4G networks, demand for video streaming is gaining significant pace. Hence, the acquisition of HQV assets will help Qualcomm to implement its technology with the snapdragon processor, thus offering high quality video processing services to smartphone and tablet makers.

Moreover, with the introduction of smartTV, the whole television industry is witnessing a change. So in order to gain a strong foothold in the home networking market, Qualcomm has already acquired Atheros Communications that manufactures Wi-Fi chips for televisions. The company is now planning to buy the video chipset business from Integrated Device Technology.

We believe that Qualcomm’s record-high earnings, strong balance sheet, continuous acquisition plans, product diversifications and solid management outlook for the current fiscal year will act as positive catalysts in the long run. Moreover, the growing popularity of smartphones and tablets coupled with increased deployment of 3G/4G networks will further drive the stock upward.

However, stiff competition from formidable rivals like Broadcom Corporation ( BRCM - Analyst Report ) and Texas Instruments Inc. ( TXN - Analyst Report ) as well as lower ASP of smartphones will negatively impact Qualcomm’s royalty business going forward.

We thus, maintain our long-term Neutral recommendation on Qualcomm. Currently, Qualcomm has a Zacks #3 Rank, implying a short-term Hold rating on the stock.