Microsoft expects $45 billion annually in revenue from Nokia deal

Talk about strategy and synergy all you want, but Microsoft's Nokia buyout is primarily about one thing: Big revenue. The company claims that it expects to get somewhere around $45 billion a year in revenue by 2018 from it. Is that number real, or is someone cooking the books?

That numbers are in plain sight on the PowerPoint presentation that accompanied Microsoft's announcement about the deal. Head over to slide 22, and you'll see them there. Microsoft estimates that there will be 1.7 billion worldwide smartphone shipments in 2018, and that Windows Phone will have 15% market share by then. Based on Microsoft's expectations of revenue from each phone, that adds up to $45 billion.

Microsoft claims that well before then, it will see dramatically greater revenue from Windows Phone. Under the existing deal with Nokia, Microsoft claimed in its presentation, Microsoft gets less than $10 in gross royalties from each Windows Phone device sold. But once the sale goes into effect, Microsoft says, it will get more than $40 gross margin for each device. Based on those numbers, Microsoft says, it will have a breakeven operating income when it sells more than 50 million Windows Phone devices.

How realistic is all that, especially the $45 billion in annual revenue from Windows Phone by 2018? If you believe the most recent IDC forecasts, Microsoft may be overestimating its income from Windows Phone by nearly 50% for that year. The latest figures from IDC, just out today, estimate that 1.7 billion smartphone will be shipped in 2017, and that Windows Phone will have 10% market share that year. That's exactly 50% less than Microsoft expects to get by 2018, which would mean 50% less income. Assuming that there will be growth between 2017 and 2018, that means Microsoft's estimate isn't quite off by 50%, if you believe IDC's numbers. Still, it would be off by a lot.

Of course, estimating anything five years into the future is a crapshoot at best, and like all analysts, IDC gets it wrong sometimes. For example, in 2011 IDC estimated that Windows Phone would have a 20.9% market share by 2015, with BlackBerry at 13.7%, iOS at 15.3%, and Android at 45.4%. In today's report, IDC says that Android will have 75.3% at the end of 2013, with iOS 16.9%, Windows Phone at 3.9%, and BlackBerry at 2.7%. In the next two years, Windows Phone won't be jumping to 20.9%, BlackBerry to 13.7%, and Android dropping to 45.4%

Still, IDC doesn't have any self-serving reasons for its estimate, and Microsoft does. So I'd bet on IDC being closer to being right about market share than Microsoft.

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