Nokia paying Microsoft €500m for using Windows Phone

Nokia paying Microsoft €500m for using Windows Phone

Summary: Nokia's fees to Microsoft for using its mobile OS are expect to outstrip Microsoft's support payments to the handset maker to the tune of several hundred million euros.

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TOPICS: Nokia, Microsoft, EU
26

Nokia's licence payments to Microsoft for Windows Phone are to cost it €500m more than the support payments it gets from Microsoft for using the OS.

Last quarter Nokia flagged that payments to Microsoft would "exceed" the $1bn a year it gets from Microsoft in the form of "platform support payments", but didn't detail to what extent. 

Under the arrangement in place since 2011, when Nokia began using Windows Phone as its primary smartphone platform, Microsoft pays Nokia $250m (€190m) a quarter to support it, while Nokia pays a minimum level of licence fees in return. Up until last quarter, Nokia's incoming support payments had exceeded its outgoing royalties to Microsoft, helping buoy Nokia's dwindling cash levels during its transition to Windows Phone.

In the company's full-year 20F filing with the SEC, published on Thursday, it predicted that for the rest of the duration of its deal with Microsoft, its licence payments to the company will be €500m ($654m) more than it receives in support.

"As of the end of 2012, the amount of platform support payments received by Nokia has exceeded the amount of minimum software royalty commitment payments made to Microsoft, thus the net cash flows have been in our favor. As a result, the remaining minimum software royalty commitment payments are expected to exceed the remaining platform support payments by a total of approximately €0.5bn over the remaining life of the agreement," the filing said.

Still, over the lifetime of the deal as a whole, Microsoft's support payments will be "slightly" larger than Nokia's minimum royalty payments to Microsoft, Nokia said, leaving it with net cash flow in its favour.

Nokia no doubt expects to increase sales of its Lumia devices, which run Windows Phone, well beyond the 4.4 million Windows Phone Lumias it shifted in Q4 2012.

Sales of the handsets are already on an upward trajectory - Nokia sold one million Lumias in 2011 (the devices were released in October of that year), and over 14 million in 2012.

Topics: Nokia, Microsoft, EU

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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26 comments
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  • Nokia paying Microsoft €500m for using Windows Phone

    Nice, glad to see Nokia making a turn around all while using Microsoft Windows Phone 8. It really is the best mobile operating system out there with its intuitive interface. The live tiles give you the data you need at a glance. The Nokia Lumia hardware is a well built solid phone. You put to great things together like this and you have a winner. Everyone I've shown my phone to were impressed with what I could do with it.
    Loverock-Davidson
  • Should Have Kept Up With MeeGo

    $654M bucks buys you a hell of a lot of software development.
    Alan Smithie
    • And zero in the bank buys you....

      Yes they are now going to start having a negative cash flow to MS month on month on month, but think why they made this deal? Nearly two years of hand outs and not having to pay for OS development. It's really helped nokia turn things round outside of the entry and 3rd world level phone markets.

      Plus it's a percentage fee; they still get the lions share of the money, so whilst their payments increase so does their cash flow, and, so long as five year olds don't run accounts over there their profit.

      If Nokia had seen two years ago that meego could have provided the same kind of future they would not have made this deal. Simples.

      As for WP8, I like it, it's not for me, but I do like it; the days of seriously crappy WP os's is over.... Well with the exception of no app support it was ending in 7, but We now have a three horse race and over the next few months I expect to see bb make it four.
      MarknWill
  • So does that mean that Nokia is buying more licenses

    because they are selling a lot more phones?
    William Farrel
    • It looks so

      In my country [Poland] Windows Phone has highest market share in the world, 16.3%:
      http://wmpoweruser.com/windows-phone-has-a-16-3-market-share-in-poland-one-of-the-highest-in-the-world/

      Almost every one who buy Windows Phone chose device from Nokia, and every one waiting impatiently for the new Lumia models.
      Mr.SV
    • Don't be stupid...

      ..of course they're not selling more phones. They're putting them on the shelves and trading dollars with Microsoft to inflate their sales numbers!

      Sales of licenses to OEMs (in this case Nokia) doesn't equate to end-user sales. And unless you can get an exact number to-the-customer (no extrapolating on shipments - that's funny accounting!) the numbers are meaningless and just marketing spin!
      daftkey
      • You sound like you are trying to convince yourself.

        You guys are acting as if OEM manufacturers just keep producing phones and cell carriers keep buying phones nonstop even if they are not selling.

        Almost every number you see has some sort of positive spin on it from the company that releases it and I can't think of anyone that give exact number to customer info that you desire. Especially when there is a huge multination distribution chain.
        Emacho
        • But M(dollar sign) are EVIL!

          So they MUST give exact numbers - their history of giving only extremely close estimates to the exact numbers speaks for itself!

          After all - the few thousand between 14 million and 14.001 Million is still a few thousand! Lest anyone overestimate their measly market share and think that this thing is trending!
          daftkey
  • Kudos to Nokia. Kudos to Microsoft

    Win-Win. MS makes money for selling their product and Nokia makes money for selling their product.
    toddbottom3
    • Nokia would have made 500 million more using Android.

      Zero cost.
      jessepollard
      • Laughable

        First off, there ARE licensing fees that must be paid if you want anything more than the very basic Android license. All the "premium" Android OEMs pay Google for Android extras. The only companies getting Android for free are the ultra budget feature phone OEMs.

        Second, there is only 1 profitable Android OEM: Samsung. Android as a platform is a money loser for OEMs. Samsung is profitable because Samsung is a great company, not because Android is a profitable platform for OEMs. It would be like suggesting that using Intel chips in your PC guarantees profits because apple is profitable and they use Intel chips.
        toddbottom3
        • And don't forget

          Had Nokia built Android into its phones instead of Windows Phone, then they would likely have had to ALSO pay Microsoft for the patent rights many other major Android device vendors have.

          All in all, licensing Windows Phone is cheaper than licensing Android.
          bitcrazed
          • Re: All in all, licensing Windows Phone is cheaper than licensing Android.

            Wonder why the Windows Phone OEMs are doing worse than the Android ones, then.
            ldo17
      • Common Linux mantra...

        "Zero cost."

        Translation: My time is worthless.
        daftkey
        • Re: Translation: My time is worthless.

          Yeah, what about all that time spent rebooting from crashes, doing regular Registry cleanups in spite of which you end up watching the system gradually deteriorate to the point where only a full reinstall will fix things, then discovering half your hardware won't work, having to scour manufacturers' websites for drivers, downloading installing them, or discovering that there is no update for your OS version because the vendor wants you to buy the new model, wondering why there isn't a single command, like "apt-get upgrade", that you can use to keep everything up-to-date...

          ...oh, wait, that's Windows.
          ldo17
          • You sound like the Linux-fan version of Loverock...

            ..surprised you didn't mention IRQ conflicts and all the times you had to edit your config.sys file because something went sideways.

            I did actually laugh a bit at your post for another reason - the one computer giving me issues right at this moment is my kids' machine, running Edubuntu, which hasn't been able to keep a steady connection to the internet ever since installing the *only* wireless USB adapter I could find that specifically states that it works for Linux.

            And no - there's no "apt-get" available to fix that adapter. Just a good old fashioned shell-script installer, similar to the one I had to run to install VMware.

            And no - it's not the adapter, either. My Windows 7 machine works with it just fine. Out of the box.
            daftkey
        • You are just not smart enough to make money from "Free" like Google.

          .
          Joe.Smetona
  • Both losing

    Microsoft pays more money to Nokia trying to make windows phones a valid mobile platform, so far only Nokia seems committed to it, if things don't change Microsoft will be just losing money.
    As for Nokia they need to sell a lot more than 5 million smartphones a quarter if they want to stay afloat and not fall into oblivion.
    Previous growth year over year is not the most significant for Nokia with all the changes of windows platform, they should maintain a solid growth quarter over quarter.
    In my opinion Microsoft needs to perform an "extreme makeover" on windows phone OS or they will keep on failing.
    Except for China sales, there is no big reason for window phones/Nokia be selling a lot more now than before.

    I'm waiting for windows blue...
    AleMartin
    • ...

      "there is no big reason for window phones/Nokia be selling a lot more now than before".

      Except that Windows Phone is a great phone platform that provides end-users with a really great, consistent, easy-to-use platform that is far less prone to malware etc. than Android?
      bitcrazed
      • Malware...

        "...that is far less prone to malware etc. than Android"

        ...at the moment. Of course, that could be for the exact same reason why Linux is less prone to malware than Windows on the desktop.

        Hint - only idiots buy the "intrinsically more secure" bullshyt.. in either case.
        daftkey