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Microsoft on Tuesday announced plans to sell 1,500 mobile technology patents to China-based Xiaomi, in a deal that will expand both companies' access to new markets.
Microsoft's office apps will gain a stronger foothold in China, while Xiaomi's smartphones will gain a stronger global presence.
The agreement calls for Xiaomi to ship Microsoft Office and Skype on its Android smartphones and tablets, which are among the leading brands in China and India, as well as in other global markets.
Microsoft Office applications -- including Word, Excel, PowerPoint and Outlook -- and Skype will come preloaded on Xiaomi's Android-powered Mi 5, Mi Max, Mi 4s, Redmi Note and Redmi 3, starting in September.
The deal builds upon an existing relationship between the companies that put Windows 10 on the Mi Pad and Microsoft Azure on the Mi Cloud service. Xiaomi, founded in 2010 by Lei Jun, has grown to become one of the world's leading mobile phone makers. It has expanded rapidly into emerging Asian markets, like India, where it recently launched the Redmi Note 3.
Xiaomi rose to become the world's fifth-largest mobile phone maker during the fourth quarter of 2015, with 18.2 million shipments, or 4.6 percent of the market, according to IDC.
"Xiaomi needs patents for international expansion outside of China and this is a great buy," said Ryan Reith, program vice president for the mobile device tracker suite at IDC. "It likely won't solve all of their problems, but they have been quietly buying up patents for quite some time now, so my guess is that they are getting well positioned."
The agreement comes just weeks after Xiaomi launched its first product in the U.S., a 4K version of its Mi Box, which runs on the Android TV platform.
For Microsoft, the move comes just weeks after it sold off the majority of the mobile phone businesses it acquired from Nokia in 2013.
Microsoft sold its feature phone business to Hon Hai/Foxconn unit FIH Mobile and HMD Global Oy in early May and later announced plans to slash 1,850 jobs and take a US$950 million charge related to severance payments.
The move left Microsoft in need of additional mobile devices to carry its apps, Reith said. "The move for them in mobile is to get as many of their services on as many devices as quick as possible."
One facet of the strategy underlying the patent deal has to do with Xiaomi's base of customers, who are far younger than the demographic that previously has been interested in Microsoft products, noted Ian Fogg, who leads mobile analysis at IHS Technology.
The office apps market in China has been led by Kingsoft. Xiaomi last year agreed to buy a 3 percent stake in Kingsoft from Tencent.