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Microsoft profits from Nokia sales could quadruple post-acquisition

News by Andrew Kameka on Tuesday September 03, 2013.

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While you went to the store to purchase breakfast or lunch, Microsoft went out and bought itself a handset division. Following its acquisition of Nokia's smartphone unit, Microsoft could earn four times more money than it currently gets from Lumia Windows Phone sales.

AllThingsD notes that Microsoft earns less than $10 in software fees every time Nokia sells a Lumia smartphone. That doesn't sound like a big portion of a devices that retail for $150 to $650 when purchased in full. It also doesn't add up to much considering that Nokia sold 7.4 million Lumias in the second quarter, so Microsoft earned less than $74 million from the company that accounts for 80 percent of Windows Phone 8 sales. Microsoft thinks it can do much better if it's in charge of everything.

Microsoft estimates that it's better off purchasing Nokia's handset division and collecting the $40 per device profit Nokia currently earns from smartphones. The company will also have to assume the costs of manufacturing, payroll, and marketing, but Microsoft was already spending money to help Nokia transition to Windows Phone and market Lumia products through a partnership. Instead of earning less than $74 million from Nokia last quarter, it could have earned nearly $300 million as an owner.

There's no guarantee that Nokia Windows Phone sales continue to prosper under Microsoft, so it's not as simple as spending $7 billion today to earn more money tomorrow. The move might offer long-term benefits to Microsoft because of the change in revenue sources. Microsoft would not have earned much money from royalties even if Nokia managed to double its sales next quarter; however, doubling sales with Microsoft at the helm could lead to significant gains. Windows Phone is trending upwards despite trailing Android, so owning Nokia's handset division means Microsoft reaps more of the rewards of that momentum.

Since 2011, Microsoft has made more money from patent licensees using Android than it has from licensees of its own Windows Phone software. Purchasing Nokia gives Microsoft a chance to invest more in Windows Phone and shift the source of its mobile revenue.

source: All Things D , via: Into Mobile

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Andrew Kameka
Andrew is based in Miami, Florida.

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