Do not under-estimate the contribution Android royalties make to Microsoft's overall financial health 05 Oct 14
The news that Samsung paid Microsoft over $1 billion in Android-related patent royalties for the 2013 financial year merely confirms what most readers of this blog already know: Android is a huge money spinner for the company. Just how much it makes from licensing patents related to the platform is not known, as the figures have never been made public, but here are a few pointers:
Samsung is undoubtedly Microsoft’s biggest licensee because it sells more Android-based products than any other company. But it is not the only one. According to Florian Mueller on the FOSS Patents blog (and he should know), there are 27 all together.
Back in 2012, when LG became its 11th Android licensee, the-then Microsoft head of IP Horacio Gutierrez stated that the agreement meant "that more than 70 percent of all Android smartphones sold in the U.S. are now receiving coverage under Microsoft’s patent portfolio".
Android is by far the world’s most popular smartphone platform, accounting for 85% of global sales according to the most recent figures.
It has been estimated that Microsoft makes $2 billion a year in total from Android-related royalties, but based on the Samsung amount and the three points above, it is quite possible that it actually generates more than that. While in terms of a contribution to the company’s overall annual revenue, even $3 billion would not be a huge amount – representing just under 3.5% of revenues in 2014 of $86.7 billion - that does not tell the full story about the importance of patent royalties to Microsoft.
Licensing is a very cost-light business, with the vast majority of what it generates heading straight to the bottom line. For example, at the IPBC Asia event in Singapore last November Micky Minhas, Microsoft’s chief patent counsel, revealed that the company spends $120 million on its patent portfolio annually – or a little over 10% of its licensing money just from Samsung in FY13. Thus, if you look at Microsoft’s net income of $22.07 billion in FY14, as opposed to its revenue, then all of a sudden profit-heavy Android royalties become a much more significant contributor to the business as a whole.
Put another way, in FY14 Microsoft spent $11.38 billion on R&D. It probably recouped between 20% and 30% of that just through what it generates from Android licences. That is very serious money. And it shows what a commitment to the creation and maintenance of high quality IP can achieve.
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