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China’s Massive Microsoft Gut-Punch Won’t Hurt MSFT Bull Run

Last Updated September 23, 2020 1:20 PM
Joseph Young
Last Updated September 23, 2020 1:20 PM
  • Public offices in China can no longer use Microsoft and other foreign software by 2022.
  • China banned Windows 8 in 2014 due to security concerns, it’s not something new.
  • Microsoft’s China business relies on helping Chinese businesses move overseas, won’t affect the U.S. giant all too much.

Over the next three years, offices of public institutions and government agencies in China have to replace foreign software and equipment. That means, no more Microsoft for public offices by 2022 .

China Orders Public Offices to Remove US Software

The abrupt decision of the government of China to essentially ban the usage of American software and computer equipment companies for state-funded offices moves in line with the Made in China 2025 initiative  issued by Premier Li Keqiang in 2015.

Four years ago, China established an ambitious vision  to move away from manufacturing cheap goods to higher-value products. It focuses on sectors like automotive, aerospace, IT, and robotics, which China has struggled to dominate in recent years.

The move to eliminate China’s dependence on tech giants like Microsoft, Dell, and HP indicates that the government will position itself to fuel most of the country’s IT-related operations with local technologies. 

Microsoft Won’t be Impacted

Last month, at the East Tech West conference in China, Alain Crozier, Microsoft’s CEO for the Greater China region, told CNBC that the main source of revenue  for the company in China is helping Chinese companies expand into overseas markets.

He said:

For us, it has been even more opportunities than prior. First of all, we help Chinese companies do business abroad; this is one of the biggest streams of activity.

Hence, Microsoft does not really target Chinese consumers based in China as its priority market but rather Chinese companies that are looking to serve overseas consumers  and users.

More importantly, Crozier noted that the company tries to focus on things it can control, hinting that the trade war and other geopolitical risks are unlikely to affect the firm to a large extent.

He said:

When we look at Microsoft, we try to work on what we can control. The one thing we do is to make sure that our business model and mission really help our customers achieve what they are trying to achieve with technology.

Microsoft has also been looking to move production out of China  since July amidst ongoing trade disputes.

microsoft stock
Microsoft is up almost 50% year-to-date | Source: Yahoo Finance

China Banned Windows 8 as a Precedent

China already previously banned Windows 8  for security concerns in 2014, surprising Microsoft. At the time, a Microsoft spokesperson said that it would work proactively with government agencies to ensure their products meet the requirements.

The spokesperson stated :

We were surprised to learn about the reference to Windows 8 in this notice. Microsoft has been working proactively with the Central Government Procurement Centre and other government agencies through the evaluation process to ensure that our products and services meet all government procurement requirements.

As such, China’s concern regarding potential security issues with foreign software are not something new, and it dates back to almost five years ago.

Microsoft’s China Business

The removal of foreign software from public offices in itself is unlikely to have any major impact on Microsoft and its business in China.

The vast majority of Huawei laptops run on Windows and beginning on November 29, Microsoft is allowed to sell software  to the Chinese tech conglomerate again.

However, it could pose a long-term to the expansion of Microsoft in the growing Chinese market.

Still, with Microsoft being up more than 49% year-to-date, it will need more than this to affect its bull run.