But with the takeover of Nokia's phone operations, Microsoft expects to quadruple those margins -- and to more than double its share of the smartphone market over the next five years.
Microsoft's two-and-a-half-year partnership with Nokia hasn't been great for Windows revenue generation. According to a PowerPoint presentation from Microsoft on the newly announced deal to acquire Nokia's phone operations, the company has less than a $10 gross margin for each Nokia Windows Phone sold.
With the $7.2 billion acquisition, Microsoft said, things will get better -- when that deal is completed, Redmond expects to earn more than $40 in gross margin per unit with an integrated team and more focused marketing. At 50 million units, Microsoft expects to reach break-even on the new business unit. In the second quarter of 2013, Nokia shipped 7.1 million Windows smartphones, which was 81 percent of all Windows Phones for that period, according to IDC.
Microsoft contends that the deal could enable cost "synergies" of $600 million within a year and half of the close of the deal, which is expected in the first quarter of 2014, and positive non-GAAP earnings per share for fiscal year 2016, which begins July 1, 2015.
Microsoft said it expects to more than double its share of the smartphone market over the next five years, and generate about $45 billion in annual revenue. In the second quarter of 2013, Windows Phone had 8.7 percent worldwide share of smartphones, up from 3.1 percent in the same quarter in 2012, according to IDC.
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