Market Overview

Nokia to Pay Microsoft Billions in Windows Phone Royalties?

The Lumia handsets are officially a hit. They may not have sold as many units as the iPhone 5, the Galaxy S III or the Galaxy Note II, but they are still some of the most popular smartphones released in 2012.

This has sparked a much-needed win for Nokia (NYSE: NOK), which has been struggling to survive the highly competitive smartphone market.

Unlike Apple (NASDAQ: AAPL) and Samsung, however, Nokia has not been forced to go at it alone. The company has received quarterly payments from Microsoft (NASDAQ: MSFT) in the amount of $250 million.

This money is used to offset the royalty payments that Nokia pays to Microsoft for using the Windows Phone 8 operating system. Thus far, Microsoft's payments have exceeded the minimum royalty commitment payments that Nokia has been required to pay. This has effectively saved Nokia millions of dollars.

Looking ahead, the Lumia maker expects that to change. Nokia announced that 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."

ZDNet estimates that Nokia's royalty commitments will exceed $1 billion annually in the years to come, thus providing Microsoft with ongoing royalty payments.

For this to occur, Nokia will have to increase the number of Lumia devices that are sold in 2013. While it is unclear how many units Nokia would need to sell before it has to send Microsoft a royalty check, the company sold more than 4.4 million Lumia handsets in the fourth quarter. In 2012 the company sold more than 14 million units.

By comparison, Nokia only sold one million units when the first Lumia device was released in the fall of 2011.

Nokia's impressive sales increase comes at a time when the smartphone market is growing for both of its chief competitors -- Apple and Samsung. Apple sold 37 million iPhones in the fall of 2011 and a whopping 47.8 million iPhones in the fall of 2012.

Samsung sold five million Galaxy Notes in five months last year. The company sped up its sales time to just two months when the Galaxy Note II was released, which moved another five million units.

Similarly, Samsung sold 20 million Galaxy S II handsets in 10 months. The South Korean tech giant sold 30 million Galaxy S III handsets in roughly half the time.

According to a BGR translation of a Samsung sales report, the company plans to sell as many as 10 million Galaxy S IV units per month after the handset is released. Samsung has yet to formally announce the new smartphone, but it is expected to be unveiled sometime this spring.

Apple and Samsung's ongoing success should have theoretically hurt Nokia as it has in the past. In 2012, however, Nokia only grew stronger. It seems that the company believes it will perform even better in 2013.

Follow me @LouisBedigianBZ

Posted-In: Apple Lumia 920 Microsoft NokiaNews Rumors Legal Tech Best of Benzinga

 

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