All Told, Nokia Owes $650M More To Microsoft In Their Long-Term Platform Deal, Says Nokia, But 2013 Will See A Net Gain For Finland

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Nokia today filed its 20-F financial report for the last fiscal year, in which it reiterated its projections for the next year ahead on device sales and margins for both devices and services, as well as for its Nokia Siemens Networks division. Perhaps more interestingly, it also spelled out some more detail on how much Nokia stands to gain this year in its Microsoft partnership to develop Lumia devices based on Windows Phone, Redmond’s flagship mobile operating system, but pay out more overall.

It notes that the remaining minimum software royalty commitment payments from Nokia to Microsoft are expected to exceed the remaining platform support payments from Microsoft to Nokia by a total of approximately €500 million over the remaining life of the agreement. At the same time, though in 2013 Microsoft will be the net gainer with its platform support payments from Microsoft to Nokia will slightly exceed those going the other way. Currently Nokia says that quarterly platform payments total $250 million.

From the 20-F:

Our agreement with Microsoft includes platform support payments from Microsoft to us as well as software royalty payments from us to Microsoft. Under the terms of the agreement governing the platform support payments, the amount of each quarterly platform support payment is USD 250 million. We have a competitive software royalty structure, which includes annual minimum software royalty commitments that vary over the life of the agreement. Software royalty payments, with minimum commitments are paid quarterly. Over the life of the agreement, both the platform support payments and the minimum software royalty commitments are expected to measure in the billions of US dollars. Over the life of the agreement the total amount of the platform support payments is expected to slightly exceed the total amount of the minimum software royalty commitment payments. As of the end of 2012, the amount of platform support payments received by Nokia has exceeded the amount of minimum software royalty commitment payments made to Microsoft, thus the net cash flows have been in our favor. As a result, the remaining minimum software royalty commitment payments are expected to exceed the remaining platform support payments by a total of approximately EUR 0.5 billion over the remaining life of the agreement. However, in 2013 the amount of the platform support payments is expected to slightly exceed the total amount of the minimum software royalty commitment payments, thus the net cash flows are still expected to be slightly in our favor. In accordance with the terms of the agreement, the platform support payments and annual minimum software royalty commitment payments continue for a corresponding period of time. We have recognized a portion of the received platform support payments as a benefit to our Smart Devices cost of goods sold and the remainder as a liability as part of accrued expenses and other liabilities on our balance sheet.

Microsoft figures prominently in Nokia’s annual report, with some 105 mentions by name, 159 mentions of Windows, and much more in the way of discussion about what kind of an impact the company is having and will have on Nokia’s fortunes. Specifically, while Nokia still does not mention any of its own intentions to move into the tablet market, it notes that the success of Windows 8, Microsoft’s new tablet-friendly operating system, will be fundamental to Nokia’s own success. “The success of Nokia’s Windows Phone 8 smartphones will be negatively affected if the Windows 8 platform does not achieve or retain broad or timely market acceptance or is not preferred by ecosystem participants, mobile operators and consumers,” the report says.

Nokia said that it expects its device and services business to outperform the general market for mobile devices and services, and for the margin to be 10% or more. It’s also targeting a margin of 5%-10% for NSN.

More to come.