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Yes…you did read that headline correctly, even if it does seem rather nonsensical. But for every Android handset that’s sold, Microsoft makes around $5 — and there are a lot and Android handsets being sold. Where does all of this money come from? It stems from royalty payment on patents, and it really adds up.
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Industry analyst Rick Sherlund of Nomura estimates that Microsoft benefits to the tune of $2 billion each year from Android sales — like Google’s newly released Nexus 5. The revenue that is brought in is, apparently, 95 percent profit. So far, so good. But Sherlund suggests that this income stream is hiding a dark side to Microsoft’s finances.
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The income counts towards the finances for the Entertainment and Devices division of the company, and this includes not only Xbox and Skype, but also Microsoft’s own Windows Phone. Interestingly, or worryingly depending on how you look at it, if profits from Android sales are removed from the equation, the previously profitable Entertainment and Devices actually makes a loss of around $2.5 billion.
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It’s probably a little too early to tell much about the finances of Skype, but Sherlund estimates that Xbox is losing Microsoft $2 billion each year. So on the face of it, it looks as though Xbox is really just a very expensive hobby, but Microsoft is able to offset the losses. It also seems to suggest that Windows Phone is draining Microsoft’s coffers, albeit it at a slower rate.
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Using a profitable arms of a business to support one that is less successful is not uncommon, but considering the age and popularity of the Xbox platform, it is surprising that the suggested losses could be quite so high.
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A report by Sherlund says that Alan Mulally, the CEO of Ford will end up taking the position of CEO at Microsoft, but also mentions Boeing CEO James McNerney, Jr. and ex-Motorola COO Edward Breen as possibilities.
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So what is to be done about the massive losses being made by the Entertainment and Devices division? Sherlund has an idea or two, but they may not go down very well. He thinks that Microsoft should take rather drastic action and consider selling Bing and Xbox — or even just giving them away.
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With the imminent release of Xbox One, the tide could turn, but it looks as though there is a long way to go. Whatever happens, it is interesting — and slightly ironic — to think that it is the sale of Android phones that has been supporting Xbox and Windows Phone.
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