Under a memorandum of understanding, the two companies will work closely in technology development and sales and marketing in the wireless field.

The partnership covers smartphone and entertainment handset product development, application development, collaborative sales and marketing, and an exchange of talent and technology.

TechFaith CEO Defu Dong said through cooperation with Microsoft, TechFaith could provide better services and user experience to customers in China and fast growing international markets.

Tim Chen, CEO of Microsoft Greater China Region, said it wanted to facilitate the entry of software and IT products and services from China-based companies into the international market.

Beijing-based China Techfaith, which claims to be one of the largest independent mobile handset design houses in China, raised $150m in an IPO on Nasdaq in 2005. Until now, Microsoft's biggest supporter in the mobile market has been Taiwan-based High Tech Computer Corp.

With the main mobile phone companies such as Nokia determined to prevent Microsoft getting the same grip on the mobile market, it has been forced to look at newcomers into the market. It announced an alliance last week with Qualcomm Corp, which supplies the chips to leading Asian manufacturers and can be expected to make further progress in the market.