Xiaomi has sealed a deal to buy some 1,500 patents from Microsoft, a move that will help the Chinese smartphone maker expand exports and earn the US technology giant some badly needed goodwill in Beijing.
The transaction addresses a key weakness facing Xiaomi, which is seeking to sell its devices in countries outside its home market but has been hindered by its relative lack of intellectual property to fend off lawsuits.
“In terms of patents we are a young company,” Xiaomi said on Wednesday, adding that the Microsoft deal is “a big milestone for us. It will help us with operations in new markets.”
The agreement comes on the eve of a visit to Beijing by Microsoft chief executive Satya Nadella. The US company is still the subject of an antitrust investigation in China over bundling of software, with its offices raided by Chinese authorities in July 2014.
The patent deal includes Xiaomi installing Microsoft’s Office and Skype software on its phones. Financial terms were not made public.
Xiang Wang, senior vice-president, said Xiaomi was “excited” to be working with Microsoft and that the deal demonstrated the Chinese company “is looking to build sustainable, long-term partnerships with global technology leaders”.
Other US tech groups facing setbacks in China have looked to do deals with local champions partly as a way to garner favour with Beijing. Last month Apple invested $1bn in Didi Chuxing, China’s version of Uber, which some analysts reckoned was at least partly motivated by government relations.
Xiaomi said it had applied for 5,700 patents over the past two years but declined to give any detail on the number it has been awarded, and where. The deal was a drop in the bucket for Microsoft with its 60,000 patents.
A lean patent portfolio has hindered Xiaomi’s efforts to ramp up exports. In the smartphone industry, patent litigation is a serious challenge, and access to a large number of patents allows companies to reduce their vulnerability to lawsuits by cross-licensing and trading patents.
In India, its largest prospective foreign market, Xiaomi last year faced a patent lawsuit in a Delhi High Court by Swedish telecoms equipment maker Ericsson. The case is ongoing, though Xiaomi won a reprieve in a subsequent ruling barring it only from importing and selling phones containing components linked to the Ericsson dispute.
Xiaomi currently exports to seven countries outside of China and Hong Kong, including Malaysia, India and Brazil.
Expanding exports is part of a strategy to bolster sales, which are sagging in China. Xiaomi was the best-selling smartphone brand in China in 2014 and part of 2015 but has been eclipsed by Shenzhen-based rival Huawei.
Xiaomi sold more than 70m phones in 2015, up from 61m the year before but missing both its original target of 100m and a revised goal of 80m.
Microsoft has itself had little success in trying to crack the global smartphone market. It acquired Nokia’s hardware business in 2013 for $7.2bn but the deal has been disastrous. Microsoft said last month it would take an additional $950m writedown, having already written down $7.6bn from its mobile phone operations and laid off 7,800 staff.
“It’s a win-win, with one side building up its patent collection and the other building up its ecosystem. But this deal alone won’t change either of their fortunes overnight,” said Bryan Ma, analyst at IT consultancy IDC in Singapore.
Additional reporting by Ma Fangjing