Microsoft is making $2bn a year on Android licensing - five times more than Windows Phone

Microsoft is making $2bn a year on Android licensing - five times more than Windows Phone

Summary: If analyst numbers are right, Android will still make more money for Microsoft than its own mobile OS in the next couple of years.

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According to a Nomura analyst, Microsoft's comprehensive Android licensing agreements with smartphone companies earned it nearly $2bn this financial year.

In a new report seen by ZDNet containing advice for the new Microsoft CEO, Nomura analyst Rick Sherlund says Microsoft is making billions from its Android licensing agreements, and that it's been using the cash to conceal losses in its entertainment and devices division (EDD), traditionally covering Xbox, Windows Phone and Skype.

The analyst estimates that without Android royalties, EDD would be losing about $2.5bn a year, $2bn of which is down to Xbox.

To arrive at Microsoft's Android licensing revenues of around $2bn a year, the analyst assumed that Microsoft makes an average of $5 per unit on each Android sold, and that Microsoft has about 70 percent of the total market covered by its licensing deals.

Previous estimates have put licensing revenues at between $5 and $15 per unit, but while Microsoft has revealed it has nearly every major OEM and ODM under a licence, it's never revealed the financial details of the deals, nor how many of the agreements are actually royalty bearing.

Still, according to Sherlund's numbers, in the quarter to September 2012, when 122.5m Androids shipped, Microsoft's Android royalties were $386m. By the June 2013 quarter, Microsoft is thought to have raked in $489m.

Assuming 90 percent gross margin, he figures that Microsoft made $1.6bn in the 2013 financial year, and will make $1.73bn in fiscal 2014, and $1.82bn in 2015.

By those numbers, Android will still be a bigger source of profits for Microsoft than its Windows Phone business, which Sherlund believes will bring in $3.3bn revnenues this year with gross profits of just $347m.

He estimates revenues should rise to $8.4bn in 2015, with gross profits of $1.6bn. Sherlund also estimates Microsoft's Nokia feature phones willl bring in around $1bn in gross profits by 2015.

The backdrop to these numbers is that he believes the new Microsoft CEO, tipped to be Ford Motor chief executive Alan Mulally, will take a harder look at the numbers and realise that Microsoft should offload Bing and Xbox, which together lose Microsoft between $3bn to $4bn a year and do little to help its PC floundering business.

Further reading

Topics: Android, Microsoft, Mobile OS, Mobility

Liam Tung

About Liam Tung

Liam Tung is an Australian business technology journalist living a few too many Swedish miles north of Stockholm for his liking. He gained a bachelors degree in economics and arts (cultural studies) at Sydney's Macquarie University, but hacked (without Norse or malicious code for that matter) his way into a career as an enterprise tech, security and telecommunications journalist with ZDNet Australia. These days Liam is a full time freelance technology journalist who writes for several publications.

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76 comments
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  • That's the great thing about analysts

    is that no two are ever alike, and in many cases come to totally opposite conclusions, so you get to pick and choose to suit your own arguments.
    William.Farrel
    • Yeah, or it could be more than $5 per unit

      Or less, we are just guessing after all.

      Although, would you pay $5 for an app that syncs with Exchange mail, contacts, calendar? If its only $5 they are getting off cheap.
      greywolf7
      • not if only 0.1% of the phones have exchange account on them

        nt
        Jean-Pierre-
    • I told you most of the money MS is getting from mobile

      comes from Android, thanks to MS A team, the legal one!
      theo_durcan
  • OH MS...

    You really have it tough dontcha?!
    ArcaneAce
  • why does android have to pay Microsoft?

    what patent did Android infringe on anyways? Microsoft is just looking for quick cash since wp8 is not as major os as ios or android. as I own aj iphone 5s, note 2 and lumia 928, and I can say that wp8 lacks alot but if your pure Microsoft thats a different story, but most of us including me dont use all of Microsofts products only latest office and latest windows. Finally, I know wp8 sales are rising and that good but we have to convince people like me to fully convert over but a few apps are missing for me but I do like my lumia 928 but as a daily driver.
    ITGuy000
    • correction

      but my lumia 928 lacks too much for me as a daily driver
      ITGuy000
    • A basket of 20+ patents

      When Microsoft issues licences to Android OEMs, they talk about a set of more than 20 (unnamed) patents they believe are infringed in specific cases, but a larger number that they believe could be relevant. If you look at the German lawsuits between Microsoft and Motorola, where Motorola has not yet won a case but Microsoft has been granted an import ban & injunction against Motorola, or the US where Microsoft won an ITC case against Motorola resulting in an import ban, you can see what we presume are infringed patents.
      mary.branscombe
      • I've read the patents about the case against Motorola

        2 were about keeping a file system with long and short names - pretty obvious, it's almost stupid.
        Other was about flash memory defragmentation and minimize writes - more or less obvious giving the nature of flash.
        Some were about APIs - not sure if they are valid.
        There was the one about context menus - basically the click in a different GUI element brings a different menu.
        Others were about hardware abstractions layers, regarding radio transmission - a hardware abstraction layer is just that, it's just stupid to patent them for keyboard, then for mouse, then for a printer, ...
        And the rest were similar. While lawyers and judges don't know crap about software/hardware I doubt more than 5% of software patents are moral any good - 5% it's an exaggeration, it must be less than that.
        AleMartin
        • The patent fights in courts, is between 2 sets of lawyers...

          So, MS would have its set of lawyers, and the defendant company would have its own set of lawyers.

          So, when it comes to the arguments and the proofs, chances are that MS has won because if that the proof of patent infringement, and the opposing side had to agree, along with the court, in order for MS to win the cases. Thus, MS is collecting because they have the rights to the patents, and the patents were used without permission. Nobody is going to give up millions of dollars willingly, if they have justice and a rightful argument on their side.

          People are so hateful towards MS that they fail to use proper judgment in their views.
          adornoe
          • You are too focused on MS

            The 5% referred by me are not just for MS patents, my number is for all software patents - from Google, Apple, IBM, Miscrosoft, ...

            People knowing a bit about software design and making, having spare time can "have fun" (probably wasting time) reading what some of those patents stand for.
            I leave an example of what can be found:
            http://webshop.ffii.org/webshop_en.jpg

            I'm not even against software patents like many, I'm just against silly patents about obvious or with prio-art.
            AleMartin
    • FAT32, for one.

      There is more to an OS that the UI. You realize that, right?
      skyledavisbooks
      • "exfat long filenames"

        to be precise. In court though, it was proven that Linus Torvalds was using this idea long before MS even patented it.
        eulampius
        • But as per the Google sychopants like you

          Android != Linux even though it is using its kernel, which creates a doubt that the file system used by Android is not of Linux's
          Ram U
          • scycopathy is all yours

            Android is running on TOP of the Linux kernel. You can even run Debian or another distro in the jail chroot environment. I hope you know what it means. It might be hard to comprehend for a Windows connoisseur, but still that's the fact.
            The time when Android branch(es) merge(s) with the main tree is coming.
            eulampius
          • LoL. I laught at you guys silently when you take me as

            the "Windows" guy. You don't know what systems I regularly use. Well if I root, I could run anything that is available for ARM processors on. It is proven that we could port Android on iPhone and you could install WP or Android on each other. Thanks for considering me as a connoisseur even though I don't consider myself. Because technology always evolve and there is definitely a room there to learn new stuff. I am a constant learner of technology not just limited to Microsoft technologies. There I fixed it for you.
            Ram U
          • Hey, Ram U

            "Windows connoisseur", in other words a "mouse-clicking expert" is the term used to tell that a person is clueless in IT. Sorry, it might hurt your (Micro)soft heart. Alas, Microsoft OS and products in general promote incompetence, mediocrity and mindlessness. Microsoft has proven that their agenda is to make IT things as opaque as possible so that they could make as much money as possible. Well, their own mindlessness and incompetence are also major components to that fame.
            eulampius
          • Well I understood your intention,

            still my comment holds good. Sorry to see your personal vendetta against Microsoft is blinding you totally. Kudos to ignorance. Learning few Linux/Unix Commands and rooting few android phones will not make you guru, and I think by now you understood my comment. If you think you are guru not a constant learner, you are so screwed up. I can tell, you know nothing about the internals of any system including your claim, Linux.
            Ram U
          • there's nothing personal, man

            it;s just an experience. Illiteracy is not an eternal damnation, so you can get better. Even a PhD doesn't help you when you use Microsoft products. I've been there I know. It's not my Math PhD that made me conscious of information technologies but the switch to GNU/Linux.
            Yet the original question was not about the skills or the lack thereof, it's about good and bad. Microsoft is immoral in their predatory practices no matter how good or bad their products might be. It's fully applicable to Apple as well.
            eulampius
          • eulampius, are you so clueless in every aspect of your life

            or just technology.

            The "mouse-clicking expert" designation pretty much screamed you haven't a clue.

            But then again, airline pilots, air traffic controllers, nuclear launch technician are really simple minded "push button jobs" since there's really no command line interfaces in those systems either...
            William.Farrel