ARM announced a new licensing agreement with Microsoft, lifting shares in the British chip designer on Friday.
The agreement deepens ARM's 13-year relationship with Microsoft, giving the U.S. group access to ARM architecture instead of licensing products one by one.
Microsoft, whose Windows software runs nine in 10 of the world's PCs, traditionally designs its software around chip architecture from ARM rival Intel.
With closer access to the ARM technology we will be able to enhance our research and development activities for ARM-based products, Microsoft General Manager KD Hallman said.
ARM shares were up 7.1 percent by 1107 GMT, the top gainers in the European technology index.
Analysts at Investec said the agreement may lead to Microsoft opening up its Windows 7 platform to ARM, although there was no confirmation from the companies.
If this were to happen, we would expect the near-term sales upside to be minimal, but it would give ARM an additional medium-term revenue opportunity and further strategic value, they said in a note.
Citi said the deal suggested that Microsoft may design its own ARM-based hardware for use in future devices, in a similar way as Apple was said to have designed the A4 chip in-house based on the ARM Cortex-A8 core. The A4 chip is in Apple's iPad tablet computer and the iPhone 4 smartphone.
Microsoft reported a 48 percent jump in quarterly profit late on Thursday, and said business customers were returning to the market for personal computers.
(Reporting by Georgina Prodhan and Paul Sandle; Editing by David Holmes and Michael Shields)