Rival Android Generates Revenues for Microsoft

Although, Google’s Android operating system (OS) is a direct competitor to Microsoft’s Windows Phone for smartphones, it is also a gold mine for the software giant. Per Business Insider report, Nomura analyst Rick Sherlund estimates in a new study that Microsoft makes nearly $2 billion a year in revenue simply from collecting patent royalties from Android vendors. This research shows that this money has 95 percent profit margin.

 Unlike Android, the software giant is losing money on its other businesses, namely Skype, Windows Phone, and Xbox units. The Nomura research shows that Microsoft is using its Android cash to pay for heavy losses it takes from Skype, Windows Phone, and Xbox divisions. As per this study, the company is probably losing around $2.5 billion per year. Most of this is attributable to Xbox platform, which is losing around $2 billion.

 Because Microsoft reports the profits and operating losses of the Entertainment and Devices unit together, which includes Skype, Windows Phone, Xbox, and the Android royalties, these losses have been effectively hidden, reports Forbes magazine.

 According to Sherlund, as reported by Forbes, Xbox does not fit into Microsoft’s current strategy and so must be spun out. But, says Sherlund, “Investors are blind to Xbox's struggles because they are concealed by the hugely profitable Android royalties.”

 Well, according to Microsoft, Xbox is not just a video games platform. It was supposed to dominate the living room by creating a multi-media ecosystem. The report suggests that the upcoming Xbox One is closer to the software giant’s vision for Xbox. However, Nomura analyst Sherlund is unsure about Xbox One’s impact in the living room.

 Nevertheless, the analyst believes that the long-term vision for Xbox may someday pay off, and Microsoft’s pockets are deep to realize that vision.