Microsoft Xbox One Earnings May Be Revealed In Patent Row

12/10/13 11:10AM EST

Microsoft Xbox One Earnings May Be Revealed In Patent Row Microsoft Xbox One Earnings May Be Revealed In Patent Row

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Microsoft Corporation (NASDAQ:MSFT) is a difficult company to decipher. The firm has a plethora of moving parts, and its accounts obfuscate some of its business. One of the more frustrating experiences in recent years has been any attempt to figure out the value of the console market. Both Microsoft and Sony Corporation (NYSE:SNE) hide their console numbers in their accounts. That may be close to an end at Microsoft.

Microsoft plants revenues from the Xbox One and Xbox 360 in its Entertainment and Devices division. This division also contains revenues and expenses from Skype, and Android patents among other sources. Windows Phone 8 is also included in the division. The European Union has ruled that a key Microsoft patent used in Android its invalid. That might make the division’s numbers easier to see.

Microsoft Android Patent

The Microsoft Corporation (NASDAQ:MSFT) patent EP0618540  for its File Allocation Table (FAT) or “common name space for long and short filenames” may not deliver revenue to the company’s entertainment and devices division any longer. The estimated revenue from the patent is $8 per Android smart phone. That amounts to around $3.4 billion in 2013.

Microsoft showed earnings of just over $800 million in the Entertainment and Devices division for the full year 2013. The company’s Xbox division may be losing money if Microsoft loses out on this patent, and it may show that the division has been losing money, or earning very little, all along.

Back in November Nomura’s Rick Sherlund alleged that Android patent licensing fees were all that was holding the Microsoft Entertainment and Devices division together. The analyst estimates that the Entertainment and Devices division was losing $2.5 billion per year. He said that the Xbox division may account for around $2 billion of that.

Microsoft Xbox Show Down

If the estimates on Android patent numbers bear out, Microsoft Corporation (NASDAQ:MSFT) is losing $2.5 billion somewhere. It’s difficult to believe the company is pushing that money into Skype, though Windows Phone 8 may be losing a certain amount of it. The real question is how much the Xbox division is losing, and whether the number is one the company’s investors can bear.

Microsoft is trying to convince the world, and its investors, that it can take control of the living room. If it can do so, it will surely increase sales of Windows tablets and Windows phones. That’s good for investors, but Microsoft has promised that it will take control of the living room for a long time.

If Microsoft is actually losing $2 billion on its Xbox division, investors are going to protest the company’s investment in the area. Gamers may see the structure of Microsoft Corporation (NASDAQ:MSFT) change dramatically, and not in their favor. The future of the gaming industry relies on Android patents and the whims of Microsoft investors.

Disclosure: The author has no position in the stocks mentioned in this article, and does not intend to initiate any position in the next 48 hours.