Microsoft Corporation (NASDAQ:MSFT) has inked a licensing deal with Lenovo as part of an effort that seeks to bolster its revenue stream from its intellectual property and products. Under the new deal, the Chinese company is to pre-load Microsoft’s apps such as OneDrive and Skype in some of its premium Android devices.
The two companies have also agreed to a patent cross-licensing deal that will cover Lenovo and Motorola-branded devices. The licensing business has been problematic in the recent past, income on this front having dropped on a decline in shipments of smartphones among companies that Microsoft has signed deals with.
The tech giant has also been at crossroads with Lenovo among other Chinese manufacturers that were on a slowdown on the payment of royalties on its Android intellectual. A licensing deal in this case should erase a bitter past even on a disappointing earnings report that showed a 27% drop in revenues that Microsoft generates from licensing deals.
Courting Chinese Companies
Microsoft has struck a string of similar deals with the likes of Samsung and Asus as part of an effort that seeks to bolster licensing revenues. It is estimated that the company generates as much as $2 billion in annual revenues from such deals thus making it critical to bring more companies onboard.
Chinese handset manufacturers are riding high in the smartphone business making it extremely important for Microsoft to have its products integrated into them for maximum exposure and revenues. However, a lack of licensing deals with Huawei, Oppo and Vivo could come to bite Microsoft on its attempt to recapture the amount of revenue lost on the licensing front. The three companies are among the top sellers in China of which the deal with Lenovo will do little to offset any potential loss.
Lenovo is not expected to give Microsoft a big uplift on licensing revenue given that its mobile market share has been shrinking in the recent past. A 32% decline in sales in the recent quarter all but underlines the fact that the company is in a transition phase even though chances are high for a bounce back.
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