Microsoft has licensed ARM's architecture, but while an ARM might be found in every mobile phone it seems Redmond is more interested in putting some ARM goodness into the Xbox.
An architecture licence isn't necessary for most things – 200 licensees happily make ARM chips without bothering to licence the architecture itself, including Samsung's use of an ARM in the heart of Apple's A4 processor. But Qualcomm, Marvell and Infineon do like to muck about with the ARM micro-architecture in a way that requires this kind of licence, and now Microsoft has bought the right to play that game too.
Quite why Microsoft wants to be able to make changes at such a low level neither company is saying, but it's almost certainly nothing to do with mobile phones. Windows Phone 7 handsets are already going into production, and being made by a variety of manufacturers using different processors (all based on an ARM core), so it's hardly likely that Microsoft is suddenly going to push out its own chips.
Nintendo uses ARM chips in its mobile consoles, but it's hard to imagine Microsoft making a play in that space given how hard Xbox Live is being pushed as a feature of Windows Phone 7.
The Xbox line, however, is in serious need of a new architecture. Microsoft's approach to gaming consoles (and computers) has always been to have a whopping great chip in the middle doing most of the work. The Xbox 360 still suffers from the concentration of heat that this approach creates, depending on a heatsink that expands and contracts until it eventually touches one of the chip's contacts, shorting out the system.
Increasing the processing power for the next incarnation of the Xbox will need a different approach, which is the most likely reason for Redmond to want access to ARM's innermost secrets.
Neither company is saying how much the licence cost, or why Microsoft is so keen to get its hands dirty, but unless Steve Ballmer surprises us all by reviving the Kin we should expect to see a handful of ARM chips nestled in the next version of the Xbox. ®