All posts by Pathik

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Microsoft Inks Patent Licensing Deal with Pegatron

These days, Microsoft is in the news more for its patent purchases and licensing deals than for its products. It recently acquired a boatload of patents from AOL and sold some of them off to Facebook.

It has one of the largest patent portfolios in the world, and generates a significant amount of revenue through patent licensing agreements.

Its most famous target — Android — is expected to generate more than a billion dollars in licensing revenue for it every year. It already has licensing deals with most top Android device manufacturers, which cover more than 70 percent of all Android devices sold in the U.S.

Today, it announced that it had entered a patent agreement with Pegatron, covering its products like eReaders, smartphones and tablets which run the Android or Chrome platforms. Pegatron is one of the largest ODMs, and could generate a sizable amount of licensing fees for Microsoft in the coming years.

While the exact details of the deal haven’t been revealed, Pegatron could be paying Microsoft around $5-$10 for every Android/Chrome device that it ships.

“We are pleased to have reached this agreement with Pegatron and proud of the continued success of our Android licensing program in resolving IP issues surrounding Android and Chrome devices in the marketplace. With this agreement, Microsoft has now licensed four of the top five Taiwanese ODMs,” said Horacio Gutierrez, corporate vice president and deputy general counsel, Intellectual Property Group at Microsoft.

Facebook Reports Q1 2012 Earnings; $1.05 Billion in Revenue, $205 Million in Profit

Facebook, which is expected to go public on May 17, has just released a new S-1 filing, which details its earnings for Q1 2012, as well as some other updates related to its business.

Facebook generated nearly $1.058 billion in revenue last quarter, with a net profit of around $205 million. Its revenue growth has slowed down as expected, as the base effect comes into picture and Facebook finds it hard to continue growing at the pace it traditionally has.

Of the total revenue, around $872 million was generated through advertising on its platform, and $186 million was generated by payment fees on virtual transactions.

It also released some updated user metrics — Facebook now has more than 901 million monthly active users, up from 845 million a quarter ago. It is seeing high engagement levels, with its daily active user base at 526 million. It is also seeing tremendous growth in mobile usage, with over 500 million mobile MAUs in April 2012.

Besides the usual financials, Facebook also released more details about the Instagram acquisition and its patent purchases.

It acquired Instagram in April for $1 billion. Of that, $300 million was paid in cash, and the rest was in the form of 23 million Facebook shares. This internal valuation values Facebook at $77 billion, which is much lower than the $100 billion IPO figure quoted often in the press.

Facebook also announced that the break-up fee for the Instagram deal is around $200 million.

It also announced that it acquired 650 patents from Microsoft for $550 million. It will also get licenses for other AOL patents owned by Microsoft as part of this deal. This is primarily a defensive measure, as Facebook gears up to defend itself from patent lawsuits like the one filed by Yahoo earlier this month. It has now acquired more than 1400 patents, and has around 50 of its own.

Google May Finally See a Patent Win with Motorola Against Apple

Google may have acquired Motorola primarily for its patent portfolio, but it didn’t seem like the purchase was helping it much, with Motorola struggling with its own issues. However, it seems that Google may finally have scored a small victory through Motorola, against Apple, which was found to have violated one patent related to 3G.

Motorola had filed a lawsuit alleging infringement of four patents by Apple. An ITC Judge stated that while Apple didn’t infringe on three related to Wi-Fi, application tracking and proximity sensors, it did infringe on one, which helps eliminate noise and boost 3G signals.

Apple recently lost its own ITC case, through which it was trying to have imports of Motorola’s Android devices blocked.

Motorola seems to be having a lot of luck lately, if not in the smartphone market then at least in the patent arena. It recently won a case against Microsoft, which was found to be infringing on 4 Motorola patents relating to Wi-Fi and video decoding on the Xbox.

However, it’s going to take a lot more than just a couple of lawsuits to justify Google’s purchase of Motorola, which not only cost it $12.5 billion, but also led to the alienation of other Android device makers, who may now be gravitating to other platforms.

Facebook Buys 650 AOL Patents from Microsoft for $550 Million

If you have not been living under a rock, you already know about Yahoo’s patent lawsuit against Facebook, and Facebook’s counter-lawsuit. You must also be aware that AOL recently sold most of its patent portfolio to Microsoft — nearly 800 patents for $1.05 billion.

While Facebook itself bought itself some patent protection from IBM, we speculated that they may not be enough to properly defend itself, and that Facebook may need to buy some more. We also suggested that Facebook should buy AOL’s patent portfolio.

Apparently, Facebook has gone ahead and done exactly that. It has acquired around 650 of the AOL patents from Microsoft. Microsoft will now own around 275 AOL patents and applications, as well as a license to the ones it sold off to Facebook.

“Today’s agreement with Microsoft represents an important acquisition for Facebook. This is another significant step in our ongoing process of building an intellectual property portfolio to protect Facebook’s interests over the long term.” said Ted Ullyot, general counsel, Facebook.

The deal actually makes sense, as Microsoft owns a significant stake in Facebook, and has backed it since years. Facebook gets the patents it needs, and Microsoft gets the license to them, while retaining the patents it needed most.

“Today’s agreement with Facebook enables us to recoup over half of our costs while achieving our goals from the AOL auction. As we said earlier this month, we had submitted the winning AOL bid in order to obtain a durable license to the full AOL portfolio and ownership of certain patents that complement our existing portfolio,” said Brad Smith, executive vice president and general counsel, Microsoft.

Microsoft Reports $17.4 Billion Quarterly Revenue; Office and Server Sales Grow Most

Microsoft announced its earnings for the quarter ended March 31, 2012, with revenue of $17.41 billion and operating income of $6.37 billion, a 6% and 12% year-over-year increase respectively. Its net income was $5.11 billion.

The Server & Tools business posted the highest revenue growth, with sales growing to $4.57 billion, up 14% over last year. Microsoft’s primary money maker – the Business division which is comprised of Office and Dynamics – saw revenue grow 9% to $5.81 billion.

On the other hand, its Windows division saw revenue growth slow down to just 4%, with revenue of $4.62 billion. It is expected to see a massive jump once Microsoft launches Windows 8 in late 2012.

The Online Services division, comprised of Bing, MSN and Microsoft’s other online properties, posted a loss yet again, losing $300 million on revenue of $707 million. At this rate, it should become profitable in the coming years.

Entertainment and Devices – Xbox, Kinect, Windows Phone and Zune – posted a 16% decline in sales, which dropped to just $1.62 billion, as the holiday sales period wore off, and the Xbox 360 enters its 7th year. Microsoft may launch the next Xbox in 2013 or 2014, which should lead to a sales boost.

“We’re driving toward exciting launches across the entire company, while delivering strong financial results,” said Steve Ballmer, chief executive officer at Microsoft. “With the upcoming release of new Windows 8 PCs and tablets, the next version of Office, and a wide array of products and services for the enterprise and consumers, we will be delivering exceptional value to all our customers in the year ahead.”

With Windows 8, Office 15 and the next Xbox launching in 2012 and 2013, the next couple of years are going be be very important for Microsoft.

Facebook Plans to Go Public on May 17

Facebook is reportedly targeting an IPO date of May 17. Facebook’s IPO has been highly awaited for more than a year, and is going to be the biggest internet IPO in history. If the Securities and Exchange Commission finds no issues with its IPO related filings, May 17 could be the D-day for Facebook.

Its expected valuation is around $100 billion, which makes it half as valuable as Google, its arch nemesis. Facebook makes most of its money from online advertising on its network, and the remainder from transactions of virtual goods, on which it charges a 30% cut. It will list on the NASDAQ with the ticker “FB”.

With its net profit for 2011 being $1 billion, it will have a trailing P/E of 100 at the $100 billion valuation. It is expected to reach more than a billion users by the end of 2012 or early 2013, up from 845 million at the end of 2011.

According to a Dealbook report about the Instagram acquisition, Facebook internally values the company at around $104 billion, and it’s quite likely that it may see an opening day pop, with its valuation ending up even higher.

We will keep you updated on the Facebook IPO. In the meantime, check out some really interesting facts about the Facebook IPO.

Nokia has a Dismal Quarter; Sales Disappoint

Nokia announced its earnings for the first quarter of 2012, and as expected, they suck. Its net sales dropped 29% year-over-year to €7.35 billion, while its operating profit dipped from €439 million to an operating loss of €1.34 billion.

It has seen a decline in not only smartphone sales, but also mobile phone sales. It is expecting to make an operating loss again in the next quarter, as it scrambles to get its device strategy in place.

While most of the loss can be attributed to restructuring, it would have reported a loss even on an adjusted, non-IFRS basis.

While the sales of Lumia devices have apparently been encouraging, they hardly offset the decline in sales of Nokia’s Symbian devices.

“We are navigating through a significant company transition in an industry environment that continues to evolve and shift quickly. Over the last year we have made progress on our new strategy, but we have faced greater than expected competitive challenges.” said Elop, Nokia’s CEO. “We are confident in our strategy and focused on responding urgently in the short term and creating value for our shareholders in the long term.”

At this point, Nokia’s future is almost entirely tied to Microsoft’s Windows Phone. 2012 is going to be a very crucial year for both of them, and should tell us whether or not Nokia made the right move by betting everything on Microsoft’s horse which may be capable of smoking the other horses, but entered the race too late.

Nokia plans to focus on the budget smartphone segment with cheaper smartphone options like the Lumia 610, and also focus on international markets to drive growth.

Yahoo Announces Earnings for Q1 2012

Yahoo reported its financials for Q1 2012, with a slight increase in net revenue, which was $1.077 billion, up 1% year-over-year. However, its income from operations declined to $169 million, a 11% decline over last year. While its display ad revenue saw a 4% decline, its search revenue was up 8%.

Despite the decline in operating income, Yahoo’s net income actually jumped 27%, primarily because of earnings due to its equity interests in Alibaba and Yahoo Japan, which are currently valued at more than its actual operations.

Anyway, Yahoo plans to focus on its core digital content business in the coming days, and hopes to better monetize its massive audience. It has established a new structure around three groups – Consumer, Technology and Regions – bringing resources closer to users and advertisers.

It has also laid off a significant portion of its total workforce, to cut costs and save nearly $375 million in the next year.

In the last couple of weeks, it also sued Facebook in the hopes of making a quick buck before its IPO, and is looking to monetize its stake in Alibaba.

Yahoo also announced that it will be shutting down nearly 50 products that don’t contribute meaningfully to its revenue, as part of its restructuring effort. Besides its media content and social endeavors, it will also try to leverage its vast troves of user data to focus on its commerce business and generate additional revenue by providing better ROI to advertisers.

Scott Thompson is moving fast to create a new, leaner, meaner Yahoo. Whether or not his bets pay off is something we’ll know only in the next couple of years.

Google Has a Great Q1 2012; Founders Want to Split Stock for Greater Control

Google announced its earnings for Q1 2012, posting gross revenues of $10.65 billion, up 24% year-over-year. Its traffic acquisition costs (TAC) remained stable at 25% of the gross revenue. Google saw net income of $2.89 billion this quarter.

Its revenue growth was driven by a 39% increase in aggregate paid clicks, which compensated for a 12% decline in the average cost-per-click. This trend is expected to continue as mobile search advertising forms a large piece of the search advertising pie that Google commands the largest share of.

Its cash, cash equivalents and marketable securities now add up to $49.3 billion, nearly half of what Apple’s reserves were at the end of 2011.

While the numbers were good, they weren’t the most interesting part of the earnings release.

Google’s management team is trying to float a new class of stock with no voting rights. It will be offered as a stock dividend to existing shareholders — effectively a stock split — but will enable Google’s founders to retain their current level of control, which is slowly being diluted away due to stock based compensation for employees and acquisitions where part of the payoff is in Google stock.

Google already has a dual class stock structure, with class A and class B shares. Class B shares have 10 votes per share, while class A shares have only one. The new class C shares will have no voting rights at all. They will trade separately from normal Google stock, possibly at a discount due to the lack of voting rights.

With this move, Google’s founders will have more control over the destiny of Google, and be able to focus on long-term plays without having to make short-sighted moves to increase short-term profit.

Facebook Valuation Jumps to $102.8 Billion in Last Auction Before IPO

Facebook’s valuation has risen exponentially, with investors at almost every point set to see a positive return when it goes public at a possible valuation of $102.8 billion. Facebook is currently expected to go public in May, in what will be one of the biggest Internet IPOs of all time. It aims to raise close to $5 billion, in order to provide an exit to its existing shareholders, and get more cash to fuel its expansion spree.

Facebook has been the most active stock in secondary markets like SharesPost and SecondMarket. March 30 was the last day of secondary trading for the stock, as the SEC and Facebook halt secondary trading to clean up their books before the IPO. At the penultimate auction, its valuation was $94.4 billion, but at its final secondary auction yesterday, its valuation jumped to $102.8 billion, possibly its highest ever, according to a report by Bloomberg.

Despite being valued relatively highly, Facebook could end up seeing a significant pop in its share price on IPO day, going by the voracious investor appetite evidenced by the huge demand in secondary markets. It seems like the patent lawsuits by Yahoo and others against Facebook right before its IPO haven’t dampened investor sentiment at all.