Microsoft would do well to avoid China as US considers national security implications, says CEO Satya Nadella

Microsoft CEO Satya Nadella speaks to CNBC on November 15, 2023.

CNBC

Microsoft is not focused on China as a domestic market, although the company has significant Chinese customers operating outside the world's second most populous country, Chief Executive Satya Nadella said on Wednesday.

“We're primarily focused on the ex-China global market,” Nadella told CNBC's John Fort at Microsoft's Ignite conference in Seattle. “A Chinese multinational operating outside of China is probably our biggest AI customer.”

Microsoft provides AI services to electric car maker Lee Auto and a consumer electronics company Xiaomiamong others.

Nadella's remarks come as business leaders gather in San Francisco with US President Joe Biden and Chinese President Xi Jinping. The world's two largest economies have a complicated business relationship, especially when it comes to technologies such as networking equipment, semiconductors and Internet services. In October, the US Commerce Department said it would impose additional export restrictions on AI chips for China.

Microsoft has a more visible presence in China than some of its peers. Meta The Facebook and Instagram apps do not officially work in China, nor do they work of Google search engine. Amazon closed its online marketplace in China in 2019.

According to Microsoft web page Regarding its presence in China, the company has operated there since 1992, including through its largest research and development center outside the US. The Bing search engine has been available in China since 2009.

Within months of this year, after launching an AI chatbot in Bing, it became the go-to desktop search engine in China. However, based in Beijing Baidu It has since regained the lead, according to StatCounter. Earlier this week, Microsoft's advertising division announced Partnership with Baidu.

Still, Nadella acknowledged Wednesday that the U.S. government has significant restrictions it must adhere to when it comes to doing business in China.

“Clearly the United States has some policy decisions that they make about what trade, competition and national security mean,” Nadella said. “Obviously, we are subject to whatever the US decides” and we will comply, he added.

In the third quarter, just over half of Microsoft's sales came from US customers. The US government uses Microsoft Azure cloud services and Microsoft 365 productivity apps.

While Microsoft doesn't rely heavily on China for revenue, the company does depend on the country for production, in part for its Surface PCs.

“At least for us today, most of our business is in the United States, Europe and the rest of Asia, and so we don't see that as a major, major issue for us, frankly, other than any supply chain disruption,” Nadella said.

Microsoft has recently faced some challenges in China.

In August, LinkedIn stopped functioning Its InCareer app for professional users in mainland China, citing “fierce competition and a challenging macroeconomic climate”. This move came two years after Microsoft announced plans to shut down the localized version of its main app for users in China.

Last year, China According to reports told its government agencies and government-backed companies to hand over computers from foreign countries and replace them with locally made machines and local operating systems. This comes after Microsoft developed a special version of its Windows 10 operating system for the Chinese government.

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