The new license greatly extends the technologies Microsoft can make use of from Arm Holdings. The companies have collaborated for years on software and devices mainly in mobile, consumer and embedded products.

"We have licensed our architecture and our instruction set to Microsoft," said Ian Drew, executive vice president of marketing at Arm. "This type of license allows you to design your own microarchitecture."

Only a select group of companies hold similar licenses to design their own Arm-based microarchitectures, including mobile phone chip giant Qualcomm, as well as Marvell Technology and Infineon Technologies.

"As an architectural licensee, Microsoft wants to go public about adding itself to that short list," Drew said.

Arm Holdings licenses Arm technology to a number of companies around the world. Arm-based microprocessors are found in the majority of the world's smartphones. Intel, the world's largest chip maker, has developed its Atom microprocessors in the hope of someday rivaling Arm-based microprocessors in smartphones and other small devices.

Microsoft and Arm said the size and scope of the deal are confidential.

"Arm is an important partner for Microsoft and we deliver multiple operating systems on the company's architecture, most notably Windows Embedded and Windows Phone," Microsoft said in a statement.

Closer access to Arm technology gives Microsoft the ability to enhance its research and development around Arm-based products, the statement said.

A number of companies custom-design chips to meet the specific needs of a device or software. Apple said it custom-designed its A4 chip for the iPad and iPhone 4 to be more powerful for multitasking and yet extremely battery-efficient.