Microsoft (NSDQ: MSFT) could be adding one more OEM to its list of Android licensees, and this one is a biggie: Huawei, the ambitious Chinese OEM that is rapidly gaining market share on the back of producing low-cost Android-based devices. The development raises questions about whether Android phone makers competing on low prices will need to rethink their business models — and whether we might be seeing Huawei joining the ranks of handset makers also making Windows Phone devices.
The news comes on the heels of a separate announcement that shows it’s not just Microsoft on the receiving end of licensing fees at the moment: it has also inked a deal with Openwave (NSDQ: OPWV) so that it can have access to the mobile tech company’s patent portfolio.
The Huawei deal is still being negotiated, according to Victor Xu, director of marketing for Huawei Devices, who confirmed as much to the Guardian.
When the deal is completed, Huawei would become the eleventh OEM that builds Android devices to sign deals with Microsoft. The list includes both those who only make Android devices, as well as those who also develop handsets based on Microsoft’s own Windows Phone OS, the two biggest being Samsung and HTC.
Separately, the Openwave deal makes Microsoft the first licensee for Openwave’s 200 patents, which the company says relate to smart devices and cloud-based technologies. Openwave is currently suing RIM (NSDQ: RIMM) and Apple (NSDQ: AAPL) for infringing on these same patents, so getting one big company on board could see negotiations advancing with the other two parties.
Microsoft’s deal with Huawei raises a couple of interesting questions about what we might see next from the Chinese handset maker:
» WP7 devices? Microsoft has been using its patent deals to collect revenue on Android devices — some believe that Microsoft could be making even more from its Android licenses than it is from licenses for its own OS, with one guesstimate at $444/million per year. But perhaps as importantly, it has been leveraging its Android negotiations to promote its own OS.
Most recently, Microsoft’s licensing deal with Samsung for Android devices also included detail of broad support for WP7. Some have speculated that this WP7 support could have even been used by Samsung to drive down its Android fee.
Considering this fact, is it possible that we might also start to see Huawei making Windows Phone devices in the future, too, as a way of defraying the cost of the Android coverage? So far, Huawei has said that it is watching WP7 with interest, but it has yet to announce any devices using the OS.
» Farewell, cheap Android devices? The fact that Android OEMs have not had to pay Google (NSDQ: GOOG) any royalties for Android has definitely helped them discount the phones and continue to get some kind of margin on the devices, and Huawei has been one of the strongest promoters of that business model. But how will that be impacted by a license fee that could be as much as $15 per device? (That’s the amount thought to be paid by Samsung.)
Huawei wants to break into the top-five smartphone makers, but it will be harder for a new entrant to achieve that if they have to price their devices closer to those of their more established rivals.