For a long time, Microsoft made a killing with its licensing deals with Android manufacturers. It was to the tune of a billion dollars and the best part was that Microsoft made money from almost every Android handset that was sold. Unfortunately it looks like the proliferation of cheap Chinese phones is causing that licensing revenue to fall:
From Business Insider:
“In the release, Microsoft noted that its patent-licensing revenue was down 26% from a year ago. And it’s because of Android. […] Suh also noted that not every Android manufacturer has a licensing deal with Microsoft. He didn’t name names, but Chinese phone makers typically take a very loose approach toward licensing American intellectual property, and as those inexpensive phones take over the world, Microsoft doesn’t benefit as much.
At one point, Microsoft was reported to be booking $2 billion a year from licensing its patents and other intellectual property to Android handset makers like Samsung and HTC. Microsoft has never confirmed that number, but it’s probably a drop in the bucket compared to the overall Windows business, which booked revenue around $4.2 billion this quarter. (“Windows revenue decreased $292 million or 7%,” the release says.)
Still, the Android gravy train is slowing down for everybody.”
The fall in sales for licensed partners like HTC, LG and Sony and the increase in sales of the iPhone with chinese phones is leading to less royalties. The concern for Microsoft is that this looks like it will only get worse.