The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage. NEW YORK ( Trefis) -- Microsoft ( MSFT) launched Windows Phone 7 last year with the hopes of making a major splash in the smartphone market. However, the tech giant's biggest driver of value in smartphones so far comes from Android licensing fees as Android recently captured 50% market share worldwide and close to 40% market share in the U.S. market. The smartphone OS market is currently dominated by Google's ( GOOG) Android and Apple's ( AAPL) iOS that are both gaining market share at the expense of Research in Motion's ( RIMM) Blackberry and Nokia's ( NOK) Symbian. We currently have a $28 Trefis price estimate for Microsoft , which implies about a 15% upside to the current market price. Microsoft's Windows Phone 7 OS has failed to take off as successfully as it was planned while Android has rocketed. While the company expects sales to pick up with the launch of Windows Phone 7 Mango as well as the Microsoft-Nokia partnership, the second-quarter sales results for Windows Phone 7 were disappointing. However the company is licking its chops from the juicy licensing fees it gains from Android handsets. According to Horace Dediu, Microsoft sold around 1.4 million Windows Phone 7 in second quarter, which brought in around $21 million from the $15 per Windows Phone 7 that it earns. On the other hand, HTC sold 12 million Android smartphones in second quarter, and as it earns around $5 per Android phone from HTC patent licensing fees, Microsoft made around $60 million. This is three times the amount earned from its own OS from the licensing deal with HTC alone.
In addition to HTC, Microsoft is in the process of entering patent licensing agreements with almost every major Android device manufacturer. And if Android's success so far is any indication, we should see hundreds of millions of Android devices shipped in 2012, and this could easily turn out to be Microsoft's next billion dollar business. Click here for an earlier article on this subject. You can tweak this model to see how an increase of $1 billion in revenues from Windows Mobile (now Windows Phone 7) could boost our Trefis price estimate for Microsoft. Check out our complete price analysis for Microsoft here. Like our charts? Embed them in your own posts using the Trefis Wordpress Plugin.