Taking on Apple and Google, Microsoft and Chinese electronics major Xiaomi have signed Memorandum of Understanding (MoU) to develop Artificial Intelligence (AI)-powered budget speakers and smartphones.
The companies would work closely in Cloud computing, AI and hardware. Since they have chosen to sign a memorandum, their partnership is not legally binding and it is unclear if any financials are involved, the Verge reported late on Friday.
Microsoft is planning to allow Xiaomi to use its Cloud computing products, including Azure, to develop upgraded phones, laptops and smart devices.
At the same time, the partnership will also give Microsoft more reach and access to the Chinese market.
According to the Chinese player, it stands to benefit from "Microsoft's globally leading technologies in Cloud computing and AI."
Xiaomi might also integrate Microsoft Cortana with the Mi AI speaker -- a budget speaker with a modern look.
So far, Microsoft has only developed one Cortana smart speaker "Harman Kardon Invoke" that has struggled to compete with other popular digital assistant speakers from Amazon, Google and Apple.
Microsoft and Xiaomi are also in talks about projects that will use several Microsoft AI technology, including conversational AI and speech and services like Bing, Edge and Skype, the report said.
Microsoft and Xiaomi have ties that date back to 2015, when they signed a deal to test Windows 10 on Xiaomi devices.
Last year, Xiaomi was the world's fifth most popular smartphone company, shipping 92.4 million phones, trailing the likes of Apple, Samsung and Huawei, according to numbers released by market research firm International Data Corporation (IDC).
The smart speaker market is currently dominated by players such as Google, which makes Google Home and Amazon, which makes Echo. Apple too, recently entered the market with its AI-based smart speaker HomePod.
According to a report by Loup Ventures, Amazonâ€™s Echo leads the market with 55% share followed by Google Home with 23% market share and HomePod, which has secured 3% market share in the U.S.