During Microsoft’s Ignite conference in Seattle, CEO Satya Nadella clarified the company’s stance regarding its market strategy in China. Nadella highlighted that Microsoft’s primary focus lies outside China, targeting the global market excluding the country, citing a significant client base among Chinese multinationals operating internationally.
“We are mostly focused on the global market ex-China,” Nadella told CNBC during an interview with CNBC’s Jon Fortt at the conference. He emphasized that several prominent Chinese multinational corporations, operating beyond China’s borders, constitute major clients for Microsoft’s AI services.
Among Microsoft’s Chinese clientele are Li Auto, an electric vehicle manufacturer, and Xiaomi, a consumer electronics company, both leveraging Microsoft’s artificial intelligence offerings.
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Nadella’s remarks surface amidst a gathering of business leaders in San Francisco, attended by both U.S. President Joe Biden and China’s President Xi Jinping. The complex business relationship between the world’s two largest economies, especially concerning technologies such as networking equipment, semiconductors, and internet services, remains a focal point of discussion.
The U.S. Commerce Department’s decision in October to impose additional export restrictions on AI chips for China underscores the ongoing tension between the nations in the technological sphere.
Microsoft, with a notable presence in China, stands apart from some of its counterparts. Unlike Meta’s Facebook and Instagram, which are not accessible in China, and Google’s search engine, which remains blocked, Microsoft’s Bing search engine has been operational in China since 2009.
While Bing briefly held the top spot as the desktop search engine in China following the introduction of an AI chatbot earlier this year, Beijing-based Baidu has since reclaimed its leadership, as per StatCounter data. Recently, Microsoft’s advertising division announced a partnership with Baidu.
Acknowledging the stringent regulations imposed by the U.S. government on conducting business in China, Nadella affirmed Microsoft’s commitment to compliance. He stressed the importance of adhering to the policy decisions made by the U.S. government concerning trade, competition, and national security.
Despite these nuances, just over half of Microsoft’s sales in the third quarter originated from clients in the U.S. Notably, the U.S. government extensively utilizes Microsoft Azure cloud services and Microsoft 365 productivity apps.
While China does not constitute a significant portion of Microsoft’s revenue, the company has relied on the country for manufacturing, particularly for its Surface PCs.
Nadella reiterated that the majority of Microsoft’s business is concentrated in the United States, Europe, and the rest of Asia, highlighting that potential disruptions in the supply chain pose a more considerable concern than any direct impact on revenue.
“At least for us, today, the majority of our business is in the United States and in Europe and in the rest of Asia, and so we don’t see this as a major, major issue for us, quite frankly, other than any disruption to supply chain,” Nadella said.
However, Microsoft has faced challenges in the Chinese market, including LinkedIn’s decision to cease operations of its InCareer app for professional users in mainland China due to intense competition and a challenging economic climate. Additionally, China’s directive for government entities to replace foreign-made PCs with domestically manufactured machines has posed hurdles for Microsoft.