It’s been a rough year for foreign tech companies in China. Microsoft is the latest to make headlines with a tale of woe, in the form of a $140m tax fee paid to Chinese authorities. (Microsoft prefers to call it a $140m “bilateral advanced pricing agreement”). This comes on top of an antitrust investigation launched in July and this week’s news that one of China’s largest companies is switching its email service away from Microsoft.
But Microsoft may actually be better off in China than many other US tech companies. Due to rampant piracy, Microsoft’s revenues in China have never been very big (about the same size as revenues in the Netherlands). Microsoft’s overall revenues rose 25 per cent last quarter, year on year, despite the “more challenging environment” reported in China and Russia.
Instead, worse off in the China market are hardware companies – the likes of Cisco, IBM and Qualcomm. Cisco’s sales in China have halved during the past two years, driven by a backlash after the Snowden revelations and by the increasing capabilities of Chinese equipment manufacturers like Huawei. IBM’s China revenues are falling too, the company disclosed last quarter – on top of a 22 per cent year-on-year drop in the comparable quarter last year. IBM said a tough hardware market was to blame. The company will exit part of that business with the sale of its x86 server business to Lenovo, a deal that closed in October.