Nokia Windows Phone royalties are now bigger than MSFT platform payments. May pay more than $40 per WP license in Q1

When Nokia ditched its own mobile platforms and went full Windows Phone, Microsoft threw in several billion dollars delivered in quarterly installments of $250 million, over several years, as “platform support payments”.

Since the first Lumia launch in Q4 2011, Microsoft has already paid Nokia $1 billion in platform support payments. Which was great and helped Nokia to balance its books during the tumultuous transition period. But those good times are at the end now. While Nokia will still be receiving platform support payments during 2013 or longer, each quarter it will be paying Microsoft even more in “minimum software royalty commitments”.

Nokia logo

According to Nokia Q4 earnings report (*.pdf):

… over the life of the agreement the total amount of the platform support payments is expected to slightly exceed the total amount of the minimum software royalty commitment payments. To date the amount of platform support payments received by Nokia has exceeded the amount of minimum royalty commitment payments to Microsoft. Thus for the remainder of the life of the agreement the total amount of the minimum software royalty commitment payments are expected to exceed the total amount of the platform support payments.

Nokia will have to pay these minimum royalty fees whether it shifts enough Lumia phones or not. And, until the volumes of Lumia units grow well beyond where they are now, the royalty commitments will add up to a pretty significant amount per device shipped.

We already know that Microsoft is paying Nokia $250 million per quarter. And now Nokia tells us that every three moths it will be paying Microsoft $250 million or more in Windows Phone license fees. Nokia shipped 4.4 Lumias in Q4 2012. Lets be generous and say they will ship 6 million Windows Phones this quarter. Which means that in Q1 Nokia will be paying Microsoft at least $41 for every Lumia device shipped. Even at 10 million per quarter, the license fee will be $25 per device.

I’m not sure what kind of royalty payments  Microsoft is demanding from others, but in order to stay competitive, Nokia better ramp up its Lumia volumes real fast.

Author: Stasys Bielinis

While I like to play with the latest gadgets, I am even more interested in broad technology trends. With mobile now taking over the world - following the latest technology news, looking for insights, sharing and discussing them with passionate audience - it's hard to imagine a better place for me to be. You can find me on Twitter as @UVStaska'

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  • Fernando

    I don’t think your analysis is correct.

    Platform support payments will be paid out to Nokia as part of the exclusive agreement by only selling Windows smartphones regardless of licensing fees.

    Nokia committed a minimum of royalty fees in the multi year agreement translated or not in units sold and needs to pay for that.

    Where in the books Microsoft pays Nokia and vice versa are not in the same account as Microsoft can not just decide not to charge Nokia licensing fees and charge HTC for that matter that is why Microsoft payments are under platform support and could be offered to anyone wiling to commit just like Nokia to Windows without getting in competitive advantage situation trouble.

    Nowhere says Nokia needs to pay $250 million per quarter to Microsoft, it only says “Thus for the remainder of the life of the agreement the total amount of the minimum software royalty commitment payments are expected to exceed the total amount of the platform support payments”.

    Is way open for interpretation and speculation but again nowhere says quarterly payments from Nokia to Microsoft of $250 million or that Microsoft just pulled the plug on $250 million to Nokia quarterly.

    Nokia’s press release only states that Royalties (Commitments) will exceed from now on the $250 million per quarter Microsoft pays Nokia, actually says for the remaining of the lifetime of the agreement not even quarterly numbers.

    The agreement is rumored to be 5 years and I expect to have much higher minimum royalty payments as we move closer to that date and overall get to a situation that for the lifetime of the agreement both platform support payments and royalty commitments payments almost match is reasonable but to say that Microsoft will get now this very next quarter $250 million from Nokia and so on is plain crazy.

    If we say 4th quarter 2013 and Nokia sells 20 million Windows Phones between W7.8 and W8 at an avg royalty of $20 per phone even though W7.8 license is surely cheaper then yes we get that in 4th quarter for example Nokia would pay net to Microsoft $150 million.

    At this point the “excess” of the total amount of the minimum software royalty commitment payments compared to the total amount of the platform support payments is in my view immaterial, time only will make it exponentially higher and Nokia should have no problems making those payments otherwise goodbye Nokia, goodbye Windows Phones.