Microsoft Is Getting Rich on Android

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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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 19, 2013, at 9:55 PM, NoWindows8LockIn wrote:

    It would have helped if the type of patent license revenue had been specified.

  • Report this Comment On July 20, 2013, at 3:01 AM, sonic369 wrote:

    MSFT license fee is $8 per phone

  • Report this Comment On July 20, 2013, at 9:34 AM, krios20 wrote:

    You're forgetting those patents will only last a few more years (most will expire by the end of the decade I think). And then what? Plus, other than getting a bit of money from Android OEM's for using an open source OS (as disgusting as that may be), gives them absolutely no control over the platform, and no legacy into the future.

    Also WP's days are numbered in US:

    http://www.forbes.com/sites/terokuittinen/2013/07/19/new-evi...

  • Report this Comment On July 20, 2013, at 12:53 PM, Est1776 wrote:

    Krios, you do realize you just linked some random article from some random contributor? Facts would better support your speculation.

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