Maxim Integrated Products, Inc. ( MXIM - Analyst Report ) is planning to sell its digital video processing business to GEO Semiconductor for an undisclosed amount. The deal is expected to close by Dec 31, 2012.

Santa Clara-based, GEO Semiconductor or GEO is a fabless semiconductor company that provides video and geometry processing solutions. Its products include IC, a system-on-chip (SoC) geometry processor for capture and projection light engines. It is focused on smartphone peripherals, automotive cameras and surveillance & video communication markets.

Maxim has more than 100 patents in its video and audio processing portfolio, including its H.264 video compression and audio processing products. Thus, GEO will get to add all those patents to its portfolio. Further, the deal will allow GEO to enhance its presence intellectual property (IP) for the camera, Smart TV, surveillance, tele-presence video communications and smartphone peripherals markets.

GEO is witnessing a sudden surge in camera-based mobile, automotive and industrial applications. Thus, GEO’s proprietary technology combined with the IP from Maxim will enable single-chip solutions for all of these products.

Maxim’s digital video processing business falls under its consumer segment. This segment’s revenue is subjected to significant seasonal fluctuations in demand, shorter product life cycles as well as shorter customer lead times. However, it is witnessing strength in the smartphone market, where it has secured a number of wins. In fact, smartphones make up one of the fastest-growing segments of the consumer market right now, with very strong expected growth rates over the next few years.

Maxim has tasted success through its analog SoC with Samsung and other customers as well. Samsung’s Galaxy S3 smartphone, which uses Maxim’s power SoC chipset, has emerged as the leading smartphone maker in the U.S., surpassing Apple ( AAPL - Analyst Report ) . Therefore, Maxim’s relationship with Samsung is a big positive.

As per MarketsandMarkets, the global smartphones market may reach $258.9 billion by 2015, which represents significant growth opportunity for Maxim. It therefore makes sense for Maxim to divest its video processing business and concentrate more on the smartphone market, which is expecting robust growth in the long term.

In the first quarter of 2013 (the last-reported quarter), Maxim posted total revenue of $623.1 million, up 3.0% sequentially but down 2.0% year over year. Increased smartphone production helped sales in the consumer segment. However, the year-over-year decline in revenues was on account of a inventory imbalances and weakness in the distribution system.

Both Maxim and Apple have a Zacks #3 Rank (Hold).