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Analyst reveals that Microsoft earns $1.6 billion a year from Android, five times more than from Windows Phone

Rick Sherlund, an analyst with Nomura, has calculated that Microsoft makes around $5 for each Android unit sold, which netted the company $1.6 billion in 2013.
February 10, 2014
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ZDNet has managed to get its hands on an interesting report from Nomura, a financial services company, which shows that Google’s Android is proving to be a major breadwinner for Microsoft.

Due to licensing agreements between the two technology giants, Microsoft netted $1.6 billion from Android over the latest financial year.

Perhaps the most interesting revelation is that this money from Android is actually plugging a deep hole caused by some of Microsoft’s other Entertainment and Device Division (EDD) projects, such as Skype and Windows Phone. Estimates suggest that Xbox is by far one of the biggests costs to the company, which is currently losing Microsoft around $2 billion a year. Without royalties from Android, the EED would be losing around $2.5 billion a year in total.

In order to come to this conclusion, Rick Sherlund, an analyst with Nomura, assumed that Microsoft makes around $5 for each Android unit sold, and that Microsoft has around 70 percent of the market covered with its licensing deals. According to Sherlund’s numbers, 122.5m Android devices shipped by the September quarter in 2012, which netted Microsoft around $386 million. By the June 2013 quarter, Microsoft is thought to have raised around $489m. Assuming a 90 percent gross margin, the figures suggest that Microsoft made $1.6 billion from Android in the 2013 financial year, will make a further $1.73 billion in fiscal 2014, and $1.82 billion by 2015.

Previous estimates have suggested that Microsoft’s licensing arrangements could generate revenues of somewhere between $5 and $15 per device, which puts Sherlund’s numbers on the conservative side.

If this story isn’t juicy enough, the estimate suggests that Android actually earns Microsoft more money than its Windows Phone business. Sherlund has worked out that Windows Phone generated $3.3 billion in revenues this financial year, but only produced a gross profits of $347 million, that’s less than 22% of the amount accumulated from Android.

It should be noted that Microsoft has never revealed the exact financial details of its royalty schemes, but it has openly declared that it has a licensing deal with virtually every major OEM and ODM, which is sure to be a lucrative arrangement for the tech giant.