Sendo is now a player in the Smartphone market

Sendo was a key partner in the software giant's so-called Smartphone project.

But Sendo dumped Microsoft as its main software provider just weeks before its compact Z100 handset, offering PC-style capability, was due to launch in 2002.

One of the outcomes of the confidential settlement is that Microsoft will withdraw its 4% shareholding in Sendo.

In a filing at a Texas court, Sendo had alleged that Microsoft, lacking mobile phone expertise, extracted crucial information about the industry from Sendo and passed it on to low-cost contract manufacturers in Asia.

The allegations were denied by Microsoft, who claimed at the time that Sendo had failed to meet its contractual obligations.

Product launch cancelled

Sendo switched to Nokia as a technology partner after cancelling the release of the Z100.

Microsoft initially had a tough time breaking into the phones market, because the potential partners were afraid it could dominate both the computer software and mobile software sectors.

Microsoft's first phones were made by no-brand companies such as Taiwan's High Tech, but the firm has since gone on to collaborate on handsets with big names in the mobile business including Motorola and Samsung.

In reaching the settlement, both privately-held Sendo and Microsoft deny any and all liability.

Sendo's chief Hugh Brogan, who founded the Birmingham-based firm in 1999, said the lawsuit had not hampered its development schedule of smartphones in the wake of the Z100's cancellation.

"We are satisfied with the outcome of this settlement," he said. "We can now move forward from this point."

Microsoft said the firm was "pleased with this resolution and look forward to continuing to collaborate with phone manufacturers to bring innovative products".