Chinese smartphone maker Xiaomi and Finland based Nokia signed a multi-year patent agreement yesterday. The patent agreement includes cross-licensing of each other’s cellular standard-essential patents, while Xiaomi will also acquire patent assets from Nokia as part of the transaction. As part of the tie up, Nokia and Xiaomi will work together to build optic network solutions and data center interconnect, among other networking capabilities. In addition, both companies have agreed to explore cooperation in areas such as Internet of Things, augmented and virtual reality, and artificial intelligence.

Nokia has had multiple management changes over the years as it seeks to stabilize its smartphone/devices business. After selling its Lumia business to Microsoft 2013, Nokia continued to focus on network solutions and VR. In May 2016, Microsoft sold Nokia’s feature phone business to FIH Mobile (Foxconn subsidiary) for $350 million, after Microsoft’s Lumia division failed to pick up. Nokia has now made a new entry into the smartphone segment and announced a strategic agreement with HMD Global for Nokia branded mobile phones and tablets.

What this means for Xiaomi

Xiaomi has a global presence in 30 countries, and apart from smartphones its focus also lies on products in IoT, VR, Networking (Routers), etc. With the Nokia tie up, Xiaomi will get exclusive access to essential patents owned by Nokia in these segments, thereby cutting cost on Research & Development. The company did not mention what essential patents are being traded.

Apart from this, Xiaomi is also acquiring undisclosed patent assets belonging to Nokia. Patents are intangible assets and its value changes over time; some of these patents belonging to Nokia can be used by other manufacturers and OEMs globally in their devices. With Xiaomi taking over these patents, the Chinese company will now receive royalties (in form of licensing, copyrights, etc.) from manufacturers/OEMs using Nokia’s patents.

Xiaomi has reportedly crossed $1 billion in revenue from its India operations. During Q2 2016, Xiaomi’s Mi Band shipments accounted for 10.3% of overall Indian wearable market. In Q3 2016, the company debuted among the top 5 smartphone vendors list (in terms of shipments) according to IDC. It currently holds second place in the Indian market in terms of shipments. Apart from this, Xiaomi introduced three new flagship products (other than smartphones) in India: the Mi VRAir Purifier 2, and Mi Router 3C.