Microsoft (MSFT) Inks Patent Deal With China's Xiaomi

Microsoft Corporation (NASDAQ:MSFT) announced a deal with Xiaomi on Wednesday per which it will sell 1500 of its patents to the Chinese smartphone maker.

As a part of this deal Xiaomi will install Office, Skype and other Microsoft software on its phones and tablets.

The financial terms of the deal have yet to be disclosed.

We note that the deal is important for Xiaomi as it will now ease out its efforts toward acquiring intellectual property required to sell devices outside China. Weak patent protection was hampering Xiaomi’s efforts to expand beyond China. Lower phone shipments further compounded its woes.

Xiaomi phone shipments reportedly dropped 9% in the first quarter in China while its market share was down to 12% from 13%. The company faces tough competition from giants like Samsung (KS:005930) and Huawei as well as from smaller competitors like Vivo and Oppo.

Wang Xiang, senior vice president at Xiaomi, stated, "This is a very big collaboration agreement between the two companies."

According to Xiang, the acquisition of Microsoft multimedia, voice communications and cloud computing patents provides a strong support to the company’s international expansion efforts.

As far as Microsoft is concerned, it appears that the company is eyeing a long-term partnership with the smartphone maker that would help it to attract Xiaomi’s affluent and educated users with its pre-installed products. Microsoft needs to get its productivity and collaboration software into as many devices as possible because this will help its cloud strategy.

Currently, Microsoft is a Zacks Rank #3 (Hold) stock.

Some better-ranked stocks in the broader technology space are CommVault Systems, Inc. (NASDAQ:CVLT) Netgear Inc. (NASDAQ:NTGR) and Radcom Ltd. (NASDAQ:RDCM) , each sporting a Zacks Rank #1 (Strong Buy).