Citi: HTC Pays Microsoft $5 per Each Android Phone

Microsoft gets $5 for every HTC phone running Android, according to Citi analyst Walter Pritchard, who released a big report on Microsoft this morning.

Microsoft is getting that money thanks to a patent settlement with HTC over intellectual property infringement.

Microsoft is suing other Android phone makers, and it's looking for $7.50 to $12.50 per device, says Pritchard.

We knew hardware companies were paying Microsoft, we just didn't know how much. (In October Steve Ballmer said, "Android has a patent fee. It's not like Android's free.")

Pritchard says we can expect more legal activity to pick up around Android in the coming months because "Google appears to have very little IP to defend itself with."

This is good for Microsoft which is about to enter the tablet market and is trying to make a dent in the smartphone market.

Another Citi analyst, Kevin Chiang, believes Android phone makers have 10%-15% operating margins, and Android tablet makers have operating margins of just 2%-3%.

As Microsoft, Oracle (which is suing over Google's use of Java), Apple, and others sue companies using Android, their margins take a whack for every settlement they make.

As the margins are crushed, it makes using a Microsoft-based operating system for tablets and phones much more attractive, argues Pritchard. (Unaddressed by Pritchard is how much Microsoft gets per device and if it's less than or equal to what Android-based devices end up costing.)

Of course, Microsoft has to prove it has a compelling software package to put on tablets.

Here's a chart from Pritchard looking at the lawsuits around Android:

Image: Citi

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