Digital signal processors are used in cellular phones, pagers, digital cameras and video equipment. The companies will collaborate in designing core architecture to manufacture the processors and will set up a design group based in Austin, Texas.
The market for digital signal processors eclipsed $3 billion last year, and some estimate it could grow 25 to 30 percent this year.
News of the deal sent stocks for both companies soaring. Shares of Analog Devices gained $5.75, to $33.88, while shares of Intel jumped $4.06, to $138.69.