Android’s Success Could Lift Microsoft Past $27

July 8th, 2011 by Trefis Team
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Android is the leading smartphone platform in the world with over 500,000 device activations every day. [1] It is one of Google’s (NASDAQ:GOOG) most successful businesses helping Google capture mobile search market share and revenues that will top $1.3 billion in 2012. Microsoft (NASDAQ:MSFT) owns several patents relating to Android technology and so Android’s success is quickly becoming a boon for Microsoft, which has established licensing agreements with several Android manufacturers to settle patent infringement claims. [2] After landing several key licensing agreements and with a big Samsung agreement reportedly in the works, Android is well on its way to becoming one of Microsoft’s fastest growing money makers.

Google’s Android OS competes mainly with the Apple (NASDAQ:AAPL) iOS, Microsoft’s Windows Phone 7 and Research in Motion’s (NASDAQ:RIM) Blackberry OS in the smartphone operating system market. We currently have a Trefis price estimate of $27 for Microsoft, which is in line with the market price.

Microsoft to Benefit from Android Patent Licensing Agreements

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Since Microsoft has the rights to several patents related to technology used in Android, it has been able to turn Android into a huge revenue generating business by entering into patent licensing agreements with other companies which produce Android devices. [3] Microsoft recently entered a patent licensing agreements with several manufacturers including HTC, General Dynamics, Wistron and Onkyo under which they will pay it $5-$10 for every Android device that they ship. With 500,000 devices a day, this implies around $1 billion in value if it received a $5 fee for each Android device. Current negotiations with Samsung, the top Android device manufacturer, could land Microsoft an additional $10-$15 for every Android device activated by Samsung. [4]

Microsoft Stands to Make Billions off Android

All these patent agreements could generate revenues well in excess of $1 billion for Microsoft by the end of 2012. [4] Currently, Microsoft Office and the Windows operating system are the most valuable segments for Microsoft; however, Android could turn out to be its next billion dollar business and one of its largest revenue generators – surpassing the value of its own Windows 7 platform and perhaps Bing in the not too distant future.

Check out our complete analysis for Microsoft

Notes:
  1. Andy Rubin: 500,000 Android Activations Daily, Wired, June 29, 2011 [↩]
  2. Google’s Android: A Billion-Dollar Ad Business In 2012?, Forbes, February 8, 2011 [↩]
  3. Microsoft patent division taking cash from at least 5 Android vendors, Network World, July 5, 2011 [↩]
  4. Can Android be Microsoft’s next $1 billion business?, GigaOm, July 6, 2011 [↩] [↩]