Microsoft paid Nokia $250 million in fourth quarter to adopt Windows Phone 7; billions more to follow

By Preston Gralla

Nokia's fourth quarter earnings report last night contains a juicy tidbit: Microsoft paid Nokia $250 million in the quarter for "platform support payments" -- in other words, payment for Nokia to adopt Windows Phone 7. Billions more will follow.

Nokia said it had sales of 10 billion euros ($13.2 billion) in the quarter, down 21% from the same period a year ago. It had a net loss of 1.07 billion euros; a year previous it had a net profit of 745 million euros.

It also reported that it had sold at least 1 million Nokia Windows Phones. Carolina Milanesi, research vice president at Gartner, said the number was likely 1.5 million, which if true would be above most estimates.

A close look at Nokia's earning statement shows gives a hint of just how much money Microsoft will be paying Nokia to adopt Windows Phone 7 as its smartphone platform. In the section titled "Fourth Quarter 2011 Financial Highlights," it noted that Microsoft had paid it $250 million in the quarter for "platform support payments," the first of many to come. Here's what it had to say:

Our broad strategic agreement with Microsoft includes platform support payments from Microsoft to us as well as software royalty payments from us to Microsoft. In the fourth quarter 2011, we received the first quarterly platform support payment of USD 250 million (EUR 180 million). We have a competitive software royalty structure, which includes minimum software royalty commitments. Over the life of the agreement, both the platform support payments and the minimum software royalty commitments are expected to measure in the billions of US Dollars.

Even for Microsoft, a $250 million payment in a quarter isn't chump change. But it's well worth the investment. The Nokia deal is just bearing fruit, and it appears that it may well have jump-started Windows Phone 7. The analyst firm IHS says that Windows Phone 7 will beat out the iPhone and become the number two smartphone platform by 2015, in large part because of the Nokia deal. The analyst firm Ovum adds that Windows Phone 7 will be the fastest-growing smartphone OS in 2012.

The benefits Microsoft could gain based on the success of Windows Phone 7 far outweigh several billion dollars in payments to Nokia. And keep in mind that Nokia pays Microsoft royalties for every copy of Windows Phone 7 device sold, so Microsoft will recoup some costs. So although the $250 million may sound like a good deal of money, it's money well spent.

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