Android royalties show why Microsoft is smart to stick with Windows Phone

Nomura analyst Rick Sherlund of Nomura attracted attention this morning when he claimed in a research note that Microsoft generates a jaw-dropping $2 billion a year from Android patent royalties, as Business Insider first reported. And while such estimates should always be taken with a sizable grain of salt, Sherlund claims those patent revenues enjoy a deliver a fat 95 percent margin — so they’re almost entirely profit.

Sherlund goes on to note that those revenues roughly offset the $2 billion in losses that are attributable to the company’s Xbox business. But MobileBurn rightly looks at those revenues through a wireless-industry lens, observing that Android’s astounding sales subsidizes Microsoft’s Windows Phone business. Some analysts have opined recently that Microsoft should dump Windows Phone because “the war is over” and Android and iOS have emerged as victors. But Microsoft can continue to mint money on Android as it slowly builds the worldwide base of Windows Phone users. Which will help it build a mobile platform that it totally controls.