Microsoft’s Windows Phone dowry to net Nokia billions

Nokia’s fourth-quarter earnings report painted a grim picture of the Finnish phone maker’s business last quarter, but amid the red numbers peppered throughout Nokia’s earnings release, the high-level terms of its agreement with Microsoft were revealed. In exchange for royalty payments estimated to reach into the billions over the life of the agreement, Microsoft makes quarterly “platform support payments” of $250 million to Nokia according to the vendor’s earnings report. Read on for more.

“Our broad strategic agreement with Microsoft includes platform support payments from Microsoft to us as well as software royalty payments from us to Microsoft,” Nokia stated in a press release. “In the fourth quarter 2011, we received the first quarterly platform support payment of USD 250 million (EUR 180 million). We have a competitive software royalty structure, which includes minimum software royalty commitments. Over the life of the agreement, both the platform support payments and the minimum software royalty commitments are expected to measure in the billions of US Dollars.”

The deal should be worth billions on Nokia’s side of the equation, and Microsoft gets a number of things in return for its payments totaling $1 billion per year. As Windows Phone struggles to gain traction while Android and iOS dominate the smartphone market, Nokia represents a huge opportunity to help put the platform in the hands of consumers. Though Nokia’s smartphones shipments are in sharp decline, the vendor still sold almost 20 million units into channels last quarter.

And Nokia’s efforts could pay off big in the U.S., a key market for Microsoft. Nokia and AT&T are preparing an aggressive attack in the U.S. with a sub-$100 flagship smartphone launch. BGR exclusively reported on Wednesday that Nokia’s sleek Lumia 900 smartphone will launch in mid-March for $99.99 on contract — a remarkable price for a brand new flagship 4G LTE phone.

Nokia also contributes development efforts to Microsoft’s mobile platform. While other Windows Phone partners simply license the software as vendors did with Windows Mobile, Nokia’s position involves software development that will help shape the core Windows Phone OS.

Microsoft’s mobile platform in more than a year old now, and its late entrance into the market has made consumer adoption quite slow. Carriers and subscribers are very focused on Android and iOS, and Microsoft had few choices beyond its current arrangement with Nokia. Whether or not the multi-billion dollar deal will pay off remains to be seen, but Nokia confirmed on Thursday that it has already shipped “well over” 1 million Windows Phones to date.

Shipment figures among Microsoft’s other mobile partners remain something of a mystery but in all likelihood, Nokia will have shipped more Windows Phones than all other Microsoft partners combined by some time later this year.

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