The Cost Of Supporting Nokia

Microsoft is paying Nokia a steep price to push Windows Phone 8.

This chart shows trailing 4 quarter profits for Microsoft’s Entertainment & Devices group, which includes smartphones and the Xbox. (Using T4 smooths the profit spikes that happen every holiday season, which is the second quarter of Microsoft’s fiscal year.)

After years of losses, the E&D group was consistently in the black. In the 2010 holiday season (Q2’11) Microsoft introduced Kinect, driving profits even higher.

But a year later, Microsoft began paying Nokia $250 million every quarter for carrying Windows Phone 8. In exchange, Nokia pays Microsoft a licence fee (estimated at under $20) for every Windows Phone it sells. (The arrangement between the two has other elements as well, like technology sharing.)

Unfortunately, Nokia’s flagship Windows Phone, the Lumia 900, is selling poorly. So poorly, in fact, that the company just cut its price in half.

So Nokia helped send the E&D back into the red — it’s lost more than $200 million in each of the last two quarters. If Windows Phone sales don’t pick up, E&D will turn into a consistent money loser again.

Microsoft trailing 4 E&D P&L

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