Microsoft (NASDAQ:MSFT) announced that it signed patent licensing deals with two more Android device manufacturers – Acer and ViewSonic.   Under the licensing agreements, both the companies will pay Microsoft a fixed licensing fee for each Android device that they ship. Microsoft’s Windows Phone 7 platform competes primarily with Google’s (NASDAQ:GOOG) Android and Apple’s (NASDAQ:AAPL) iOS, as well as Research in Motion’s (NASDAQ:RIMM) Blackberry and Nokia’s (NYSE:NOK) Symbian. With licensing deals like these, Microsoft can not only make money off Android device sales, but also deter manufacturers from using Android and encourage them to use Windows Phone 7 instead.
Microsoft’s Entertainment and Devices division, which is comprised mainly of Xbox and Windows Phone 7, account for only about 8% of the $28 Trefis price estimate for Microsoft. The majority of the revenues still flow from its Windows, Office and Server businesses.
Microsoft On Track to Make Billions Off Android
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Microsoft has already signed multiple patent licensing deals with Android manufacturers like HTC, General Dynamics, Wistron and Onkyo which net it around $5 – $15 for every Android device sold by them. It is also pursuing an agreement with Samsung where it wants $15 for every Android device sold by Samsung. Last year, it made more three times more in licensing fees from HTC than it made from its own OS. (See Trefis article: Android is 3x More Valuable to Microsoft than Windows Phone 7)
While Acer and ViewSonic are relatively small fish compared to HTC or Samsung, their signing the agreement validates Microsoft’s argument that all Android device manufacturers should pay it a patent licensing fee, and that Android isn’t actually free. In the coming year, the licensing fee from Android manufacturers could easily become Microsoft’s next billion dollar business, according to our estimates. (See Trefis article: Android’s Success Could Lift Microsoft Past $27)
If Microsoft loses the smartphone wars to Android, it will still make a lot of money from its opponent. If it doesn’t, it will profit by selling Windows Phone 7 licenses directly. It’s a win-win situation for Microsoft. Tweak the model above to see how an increase in Windows Phone 7 revenues will impact Microsoft’s stock price.Notes:
- Microsoft and Acer Sign Patent License Agreement, Press Release [↩]
- Microsoft and ViewSonic Sign Patent License Agreement, Press Release [↩]