China's Xiaomi to Acquire Microsoft Patents -- WSJ
June 01 2016 - 3:03AM
Dow Jones News
By Eva Dou and Jay Greene
BEIJING -- Xiaomi Corp. has agreed to purchase around 1,500
patents from Microsoft Corp. in an example of the rising costs
facing the Chinese smartphone startup as it expands outside
China.
The deal reflects Xiaomi's efforts to acquire the intellectual
property it needs to one day sell its devices beyond developing
markets. One of its ultimate goals is to sell its phones in the
U.S.
For Microsoft, the move is the latest in a yearslong push to
collect royalties from electronics makers who use Google Inc.'s
Android operating system, which Microsoft says uses some of its
technology.
The deal comes as Microsoft Chief Executive Satya Nadella starts
a visit to Beijing. A company spokesman said Mr. Nadella will be in
China's capital as part of a trip to visit developers across
Asia.
Microsoft faces a continuing antitrust investigation in China
over bundling of software. The spokesman declined to say if Mr.
Nadella will meet with Chinese regulators during his visit.
Beijing-based Xiaomi shot to the top of China's smartphone
market in 2014 with a lean online-sales strategy that helped it
keep costs down, but it is gradually spending more on patent
licensing, brick-and-mortar stores and advertising as it
matures.
The mounting costs come at a time of slowing revenue growth, as
Xiaomi faces a saturated domestic phone market and overseas
regulatory hurdles.
Xiaomi has temporarily halted the launch of new products in
Brazil due to uncertainty in government policy, Hugo Barra,
Xiaomi's vice president of international, said in an interview on
Tuesday. Xiaomi will also bring its international marketing teams
back to Beijing, he said.
Xiaomi will purchase the patents from Microsoft for an
undisclosed sum, said Wang Xiang, Xiaomi's senior vice president of
strategic cooperation, in an interview.
The smartphone maker, whose name means "little rice" in Chinese,
also signed a cross-licensing agreement with Microsoft, similar to
ones struck a year earlier by big global electronics brands like
Samsung Electronics Co. and Dell Inc. As part of the agreement,
Xiaomi will preload Microsoft Office and Skype -- the video-chat
app owned by Microsoft -- onto some of its devices, including the
Mi 5, Mi Max, Redmi Note 3 and Mi 4S.
"Both Xiaomi and Microsoft respect intellectual-property
rights," Mr. Wang said. "We believe that with this kind of
collaboration and also our commitment for the long-term investment
in IP, we are going to build a very strong patent portfolio."
Microsoft holds more than 60,000 patents, so the patents sold to
Xiaomi represent just a small share, said Jennifer Crider, a
spokeswoman in Microsoft's legal department. "We do this
periodically," she said.
Microsoft Corporate Vice President Jonathan Tinter said in a
telephone interview that the licensing agreement included wireless
communications patents as well as other technologies, including
video.
"This is much broader than some of the other partnerships we've
had," he said.
There is still no timeline for smartphone sales in the U.S.,
although it won't be this year, Mr. Barra said. Xiaomi has brought
some other products to the U.S., including an Android TV set-top
box announced this month. Xiaomi would likely need more patents and
regulatory approval to sell smartphones in the U.S., according to
analysts.
"We are taking the necessary steps for launching in the U.S.,
but for the time being, the focus remains in India," Mr. Barra
said.
Xiaomi entered the Indian market last year, but its scale there
is still relatively small. Xiaomi wasn't among the top five
smartphone vendors in India in the first quarter, according to
IDC.
Xiaomi fell out of the world's top five smartphone sellers in
the first quarter, after being overtaken by rival Chinese companies
Huawei Technologies Co., Oppo Electronics Corp. and Vivo
Electronics Corp., according to market research firm IDC. The top
two sellers are Samsung Electronics Co. and Apple Inc.
Mr. Wang said Xiaomi is focusing this year on higher-end
products instead of sales volume.
Write to Eva Dou at eva.dou@wsj.com and Jay Greene at
Jay.Greene@wsj.com
(END) Dow Jones Newswires
June 01, 2016 02:48 ET (06:48 GMT)
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