Microsoft’s CEO Satya Nadella is reportedly sanguine about not focusing, or doing business within mainland China, amid US trade and national security concerns with that country.

Speaking to CNBC at Microsoft’s Ignite developer conference in Seattle, Nadella reportedly said Microsoft isn’t focused on China as a domestic market, but does do business with major Chinese companies operating outside the country.

The Ignite conference has also seen Microsoft reveal this week that it has developed two in-house customised chips designed to lower the cost of it providing AI services going forward.

Microsoft Azure Maia AI Accelerator first designed for large language model training and inferencing in the Microsoft Cloud.
Image credit Microsoft

Fraught relationship

Nadella made his comments about doing business in China, when speaking with CNBC’s Jon Fortt at the Ignite conference.

“We are mostly focused on the global market ex-China,” Nadella told CNBC’s Jon Fortt. “A lot of the Chinese multinationals operating outside of China are our bigger AI customers, perhaps.”

Microsoft reportedly provides artificial intelligence services to Chinese electric vehicle maker Li Auto and consumer electronics company Xiaomi, among others.

Nadella’s remarks came as business leaders gathered in San Francisco, after US President Joe Biden held a face to face meeting with China’s President Xi Jinping.

The meeting comes at a time when the relationship between the two nations is under severe strain.

The US for example recently ramped up efforts to restrict China’s access to advanced semiconductors, in an effort counter Beijing’s use of the chips for military applications.

China meanwhile in July imposed export restrictions on two elements (gallium and germanium) critical for manufacturing semiconductors and communications equipment, and banned chips made by US firm Micron from being used by operators of critical infrastructure.

The Chinese government is also seeking to halt the use of Microsoft’s Windows operating system by government agencies and departments – a move that came one step closer in July when it released its first home grown open-source desktop operating system, named OpenKylin.

This comes despite Microsoft developing a special version of its Windows 10 operating system for the Chinese government.

China operations

Microsoft’s products are thus still used in China (for the time being), unlike the products from other tech giants such as Alphabet (Google) and Meta Platforms, whose Facebook and Instagram don’t officially work in China.

Google products were banned after it famously clashed with Beijing in 2010 after its products were compromised by Chinese hackers. Amazon closed its online marketplace in China in 2019.

CNBC reported that Microsoft’s web page about its presence in China, reveals that Redmond has operated in China since 1992, and operates its largest research and development centre outside the US in that country.

The Bing search engine (unlike Google search) has been accessible in China since 2009.

CNBC reported that Nadella acknowledged on Wednesday that the US government has important restrictions to follow when it comes to doing business in China.

“It’s clear that the United States has a particular set of policy decisions that they’re making on what it means to both have trade and competition and national security,” Nadella said. “Obviously, we are subject to what the USG decides” and will be compliant, he added.

While Microsoft doesn’t rely on China for much revenue, the company has depended on the country for manufacturing, in part for its Surface PCs, CNBC reported.

“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.

Microsoft has been reducing its exposure to China in the past couple of years. In August for example, LinkedIn stopped operating its InCareer jobs app for professional users in mainland China, citing “fierce competition and a challenging macroeconomic climate.”

The move came two years after Microsoft announced plans to shut down a localised version of its main app for users in China.

Tom Jowitt

Tom Jowitt is a leading British tech freelancer and long standing contributor to Silicon UK. He is also a bit of a Lord of the Rings nut...

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