MS makes 5x more from Android fees than WP

Caroline Gabriel/Wireless Watch
19 Nov 2013

Microsoft's major push to sign up every Android vendor to its patent licensing program is paying far higher dividends than its investment in its own mobile platform.

According to calculations by analysts at Nomura, the giant is making over $1.7 billion a year from licensing fees for the IPR it holds in Android, about half what it makes from Windows Phone, and with five times the profitability.

Analyst Rick Sherlund argues, in a client report seen by ZDnet, that Microsoft has been using the cash from Android fees to conceal losses from the actual products in its entertainment and devices division, which contains Windows Phone, but also the far higher impact platforms, Xbox and Skype. Sherlund estimates that, without the Android royalties, EDD would be losing about $2.5 billion a year, $2 billion from Xbox.

Although Windows Phone is slowly raising its market share – it broke double figures in Europe for the first time in the third quarter, according to Canalys – the gulf between its own profits and those from Android could actually widen in the short term. Nomura thinks WP will start to close the gap after the acquisition of Nokia's device business, though a lot of the profit from that deal will come from feature phones rather than WP. But in fiscal 2015, according to Sherlund's forecasts, the two operating systems will be generating similar profits.

Even that may be challenging to achieve when some other factors, not necessarily highlighted in the note, are taken into account. Microsoft's Android fees will rise with the continuing increase in the numbers of devices worldwide running the Linux-based OS, and with new licensees. Microsoft is still chasing additional “partners” for the patents it has in Google's OS. Google's own Motorola Mobility is the most famous stand-out, and the companies are engaged in various law-suits, but the Windows firm is also seeking deals with makers of non-handset Android devices, which are, of course, a growing pool to fish.

So its Android income should rise, and that's not to mention the potential outcome of activities by patents consortia in which Microsoft is involved, such as the Apple-driven Rockstar group, which acquired bankrupt Nortel's patents and is now suing Google and other Android players for alleged infringements.

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