It appears that Microsoft’s little deal with Nokia is pretty much similar to why Google wanted to buy Motorola – it’s all about the patents. However, whereas the Motorola deal was to protect Android makers from patent lawsuits from rivals; it appears that the rationale for Microsoft is to find ways in reducing the amount of royalties it has to pay to others for its smartphones.
“Unless managed creatively, patent royalties can add over 10 percent of the costs of a smartphone Bill of Materials,” according to Microsoft’s rationale presentation – and given that the same document cities that it could make a gross margin of $40 or more per device, then it might need to be a bit creative to get that outcome.
So how will the Microsoft-Nokia tie up do this? Well, first off, Microsoft gets to use over 30,000 utility patents and patent applications, and will acquire 8,500 patents from Nokia – whom Microsoft describes as having “one of the two most valuable patent portfolios relevant to wireless connectivity.”
In addition, Microsoft will be able to use Nokia’s patent licences with 60 third-party sources – including Qualcomm (the second company with the most valuable portfolios), IBM, Motorola Mobility, and Motorola Solutions – under the “attractive” arrangements Nokia negotiated.
Microsoft will then combine this with its existing arrangements with Samsung, Apple, LG, Nortel and Kodak – providing the “most cost-effective” patent arrangement for any new Windows Phone 8 smartphones produced by Microsoft.
It’s an interesting tactic, but will this mean we could get a cheaper Lumia smartphone? Maybe (and hopefully) so.