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Microsoft reportedly earns roughly $2 billion per year from Android patent fees

Microsoft might still be struggling to make a major dent with its own mobile platform, but they do have at least one major mobile cash cow: Android. Reportedly Microsoft now makes roughly $2 billion per year from Android patent fees.
November 7, 2013

As you may already know, over the last few years Microsoft has aggressively went after Android manufacturers, forcing them into patent agreements due to claims that Android violates the Redmond giant’s existing patents. Back in May we even reported that Gartner claimed Microsoft could be earning as much as $8.8 billion from Android patent licenses by 2017.

But how much does Microsoft really make from Android right now, and what do they do with the money that they earn? According to Nomura analyst Rick Sherlund, the number is right around $2 billion and allegedly all the money is used to conceal losses to its “entertainment and devices division”. This division covers products like Xbox, Skype and even Windows Phone. Most of the losses are supposedly related to the Xbox.

If you’re wondering how Sherlund reached his estimate, basically he took to the assumption that Microsoft makes around $5 per unit on each Android device sold, and that roughly 70 percent of Android devices sold are covered by an agreement.

Even if Sherlund’s numbers are guaranteed to be exact, it’s still safe to say that Microsoft's patent arrangements have proven reasonably profitable for the company.

He then looked at various estimates on how many Android devices were selling per year, and suggested that at least 90% of the money brought in from the patent arrangement turns out to be pure profit for Microsoft.

The end figure reached by the analyst is that Microsoft made $1.6 billion in the 2013 financial year and is set to make around $1.73 billion in the fiscal 2014 year.

Now it’s important to realize that this figure relies on a lot of assumptions and guesstimates. We don’t know for sure how much Microsoft actually makes per Android device. Most analysts suggest anywhere from $1 – $15, depending on who you ask.

The idea that Microsoft’s patent arrangements apply to 70% of Android devices is also something that we can’t say with complete certainty — though considering they have agreements with most of the top Android manufacturers across the globe, we wouldn’t be too surprised if that figure is close.

Even if Sherlund’s numbers are guaranteed to be exact, it’s still safe to say that Microsoft’s patent arrangements have proven reasonably profitable for the company. On the low end, we are talking about closer to a billion a year. If the estimates of $15 per device are true (which we doubt), we could be looking at a whole lot of cheddar.

Of course, even if Microsoft is profiting from Android, it’s also holding the company’s own mobile efforts back, which means that Android’s prosperity still hurts Microsoft more than in helps. The good news for Google is that Android’s grasp over the market is strong enough that even Microsoft’s leeching really doesn’t hurt Android in any major way.

What do you think of the estimate that Microsoft makes nearly $2 billion a year on Android? Do you think the numbers are correct — do they surprise you?