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Investors have long suspected that Microsoft (NASDAQ: MSFT ) generates more revenue from Google (NASDAQ: GOOGL ) Android than it does selling Windows Phone licenses. Now they have more evidence to back up this hypothesis.
Within the software giant's earnings release last night, the company reported that its entertainment and devices division grew revenue by $134 million, or 8%, primarily due to Windows Phone revenue. However, when Microsoft says "Windows Phone revenue," it's including its patent licensing revenue that it gets from Android OEMs. Specifically, Microsoft said this type of revenue increased by $222 million.
Most of that has to be coming from Android.
Stay with me
Microsoft's Windows Phone license fee has been estimated between $20 and $30, based on information that a ZTE exec once inadvertently disclosed. Larger OEMs inevitably get volume breaks, and let's say that on average Microsoft gets close to $23 per unit.
IDC estimated that there were 5.4 million Windows Phones sold in Q2 2012. The market researchers have yet to release their estimates on Q2 2013, but investors already know that Nokia (NYSE: NOK ) is the predominant vendor of Microsoft's platform. Over the past four quarters, Nokia's Lumia has comprised between 73% and 81% of global Windows Phone sales.
The company just disclosed that it sold 7.4 million Lumias in the second quarter. If Nokia represents 75% of all Windows Phones, that implies that there were approximately 9.9 million Windows Phones total. That's a year-over-year increase of 4.5 million units.
At an estimated $23 license fee per unit, that would be an increase of $103.5 million in revenue just for Windows Phone licenses. The remaining $118.5 million of that increase would be Android licensing revenue -- or more than the increase in direct Windows Phone license revenue.
Windows Phone has been gaining momentum lately in the smartphone market, but not that much momentum. Meanwhile, Android has continued its rise. In Q2 2012, there were roughly 105 million Android units shipped, which grabbed 68% of the market. By Q1 2013, that figure had risen to 162.1 million, or 75% market share.
Details surrounding Microsoft's licensing agreement with Android OEMs aren't publicly available, but investors do know that all the biggest vendors have inked deals with the software giant. That includes Samsung, HTC, ZTE, and LG, among many others. In total, Microsoft has about 20 Android OEMs sending it checks for use of Google's operating system, and those are adding up.
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