A month ago we learned that Microsoft signed a patent-protection pact with Android handset maker HTC, with the Windows maker taking an estimated five bucks in royalties for every Android handset HTC makes. Some even calculated that Microsoft makes more money from Android than Windows Phone 7 licenses. Today, Microsoft confirms that it has talked another Android backer, General Dynamics Itronix (GDI), into signing a patent-protection deal.
The agreement “provides broad coverage” for GDI’s Android devices and Microsoft confirmed it will receive royalties from the company. GDI is the maker of rugged mobile computing devices and even though they’re irrelevant in the smartphone space, first-tier handset vendors like Motorola and Samsung could find it increasingly difficult not to pay royalties to the Redmond giant. Apple could indirectly benefit as well…
Microsoft’s patent fees range between $5 and $12.50 per device sold. Theoretically, those fees could be especially problematic for vendors of mid-range devices (unsubsidized $200-$300 handsets) as their operating margin is an estimated 10-15 percent. Contrast that to the iPhone margin in the range of 50 percent and an average selling price of $660 in the last quarter, both sequential ($645) and annual ($622) increase. So, with each dollar paid out to Microsoft, makers of inexpensive Android phones cut into their own slim profits while Apple continues to milk the most lucrative segment of the market. Should Apple go all out with an affordable contract-free iPhone this Fall, as some analysts predict, price wars will ensue and only those with fat margins and healthy profits will stand a chance. Thus far, Microsoft has signed Android patent deals only with HTC and GDI. With that in mind, the company could (and probably will) leverage those existing agreements to eventually pressure more prominent Android backers into paying royalties as well.
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