The deal is the latest in a string of investments by Microsoft, including the buyout of WebTV, a $1 billion investment in cable TV giant Comcast, and an investment in Progressive Networks. Much of the money is being spent to expand Microsoft's presence in the consumer market for software products in order to keep fueling its torrid earnings momentum.
Navitel already said it would support Windows CE, the slimmed-down version of Windows for handheld computers, but the announced deal tomorrow represents a "tighter integration" between Navitel's software and the Microsoft platform. The amount of the investment was not disclosed.
"We see a significant future for Internet telephone-related appliances, and Navitel is a leading software developer in this emerging category," said Craig Mundie, Microsoft's senior vice president, in a statement.
Added Navitel chief executive Randy Adams: "This alliance significantly strengthens Navitel's position as an Internet consumer products company."
The technology firm will stop making telephone devices, including its $299 Navitel ScreenPhone, and sell its hardware unit altogether to concentrate on CE development.
Privately held Navitel, based in Menlo Park, California, was founded in 1996.
Reuters contributed to this report.