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”.
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.