Milking Google?
On April 30, Geoff Duncan published an article on Digital Trends revealing how Microsoft has been benefiting from the sale of Android devices. Apparently, Microsoft receives more income from Android than Google Inc (NASDAQ:GOOG) does, despite Google being the smartphone software’s creator. This is simply because Google offers the software as an open-source product, limiting the amount of revenue it could generate. On the other hand, it is reported that Android phone makers use a lot of Microsoft’s patented technology, which results in them paying royalties to the giant software maker. Reports suggest that Microsoft received nearly $800 million in 2012 in Android-related royalties. Trefis reports that Microsoft receives approximately $12.50 per Android phone sold by Samsung and $10 for each that is sold by HTC. Android commands 75% of market share in terms of smartphone shipments as per the numbers reported by IDC in the most recent quarter when 162 million Android phones were shipped.
According to reports, Microsoft Corporation (NASDAQ:MSFT) has already inked deals with approximately 65% of all Android phone manufacturers. More importantly, the company has signed agreements with Samsung and HTC, Android’s leading flagship phone manufacturers. The two companies account for at least 130 million units shipped during the quarter, with Samsung accounting for the majority of shipments. Nonetheless, a flat multiple would translate to a revenue of no less than $1.3 billion, or at least $5 billion by the end of this year, assuming that the numbers do not change much in the next three quarters. It is such a shame that Google Inc (NASDAQ:GOOG), the maker of the Android platform, can afford to see so much money slip by and go to one of its fiercest rivals.
The bottom line
With more Android devices set to be sold this year (IDC), this provides an upside for Microsoft based on the revenue per device sold as revealed. This will also help in cushioning against the losses reported from some of its other business units, including its Surface tablets and the company’s partnership with Nokia Corporation (ADR) (NYSE:NOK).
Microsoft Corporation (NASDAQ:MSFT)’s major threat emanates from the paradigm shift in usage of PC computers to mobile devices, like tablets and smartphones. This threatens the PC industry as a whole, and the windows maker will not be spared alongside Apple Inc. (NASDAQ:AAPL).
This is also likely to affect the long-term future of the new subscription-based edition of Microsoft Office 365 Home Premium. However, in this and the next couple of years, the new Office edition guarantees increased returns and a possibility of building a strong bond with customers. Furthermore, the launch of the Xbox One game console promises more than just an awesome playing experience. There is a potential for player monetization, which could boost ad revenues. This is definitely the technology stock to watch in 2013.
Nicholas Kitonyi has no position in any stocks mentioned. The Motley Fool recommends Apple and Google Inc (NASDAQ:GOOG). The Motley Fool owns shares of Apple Inc. (NASDAQ:AAPL), Google, and Microsoft.
The article Microsoft: The Tech Play of 2013? originally appeared on Fool.com.
Nicholas is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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