HTC May Have to Pay Much Higher Licensing Fee to Microsoft

May 30, 2011 Ι Industry In-Focus Ι Electronics and Computers Ι By Philip Liu, CENS
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Taipei, May 30, 2011 (CENS)--Microsoft plans to boost the licensing fees of its software for the Android mobile phones of HTC to US$7.5-US$12.5 per unit, up from existing US$5, according to a report of Citibank Securities.

Industry insiders estimated that the move will augment the licensing-fee payment of HTC to Microsoft by over 50% to a level equivalent to its paid-in capital.

HTC confirmed yesterday (May 29) the increase of the licensing fee but refused to specify the amount.

Jung Chueh-sheng, chief financial officer of HTC, noted that it's common for hi-tech firms to pay licensing fees, adding the company's gross margin stayed at the satisfactory level of 29-30% in the recent four quarters. He discounted the influence of the increased licensing fee, which will be offset by continuing expansion of the company's sales.

Android platform, a mobile-phone operating system developed by Google, has been gaining widespread acceptance among mobile-phone makers rapidly, since it's an open platform, free of charge. Mobile-phone makers, however, have to pay licensing fees to Microsoft for the use of its services on Android phones. HTC, for instance, signed a contract with Microsoft in April last year for the use of Microsoft software on its Android mobile phones. The licensing fees not only generate considerable income for Microsoft but also dampen the competitive edge of Android platform, vis-à-vis Microsoft's own Windows platform for mobile phones.

Citibank Securities pointed out that spike in licensing fees of Microsoft will impact the profit margin of HTC, since the operating profit of Android mobile phones reaches only 10-15%.

HTC shipped 9.7 million Android mobile phones in the first quarter this year, making it the largest Android mobile-phone supplier in the world. Should Microsoft raise its licensing fee to US$7.5 per unit, HTC will see its payment of licensing fee to Microsoft to NT$9 billion this year, equivalent to its paid-in capital, up from the original expectation of NT$6 billion.
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