Yesterday, Microsoft MSFT announced that it will offer a customized version of Windows 10 to the Chinese government.
It will not only be “government-approved,” but also include Chinese-selected antivirus software.
Microsoft will form a joint venture — C&M Information Technologies for the time being — with China Electronics Technology Group (“CETG”), a state-owned enterprise that provides IT hardware and software to the country’s military.
Microsoft has previously worked with CETG. In September, a deal was signed to make China’s top search engine, Baidu, the default homepage and search engine in Microsoft’s Edge browser in China.
Windows 10 will be distributed to Chinese government agencies as well as certain state-owned companies through C&M Information Technologies.
However, the joint venture is not final. The Redmond-based software giant stated that it is still subject to regulatory approval.
Microsoft and China
In 2014, Chinese regulators conducted anti-monopoly investigation into Windows’ dominance in the market. In fact, it also banned government purchases of computers running on the operating system.
However, in Sep 2015, Microsoft CEO Satya Nadella met Chinese president Xi Jinping to discuss the concerns about intellectual property rights and how American tech firms can tap the huge market.
This Partnership
From Microsoft’s point of view, the partnership secures an important customer in the Chinese military with the potential to spend hundreds of millions of dollars.
At the same time, it secures Microsoft’s position in a huge market where several of the company’s most important vendors — like Lenovo and Xiaomi — are based.
According to Microsoft, “hundreds of millions” of PCs in China run on Windows. However, a major concern is that many of those copies are pirated. In the future, it is possible that Microsoft will work with Chinese regulatory bodies to crack down on software piracy.
The Chinese government is also benefiting from this partnership. Of late, Chinese officials have been anxious about giant U.S. tech firms, including furtive backdoors in its software, in the wake of Edward Snowden’s revelations regarding the National Security Agency’s spying programs.
The deal with Microsoft in all probability lets China inspect its version of Windows 10 to make sure there are no unpleasant surprises that might compromise state security.
Conclusion
While Microsoft desperately needs to revive the enterprise business, the Chinese government has to accept that homegrown systems have not yet come of age.
So it’s a win-win for both, if this partnership gets regulatory approval.
Microsoft currently has a Zacks Rank #3 (Hold).
Investors may consider stocks like Stamps.com Inc. STMP, Mercadolibre, Inc. MELI and Amazon.com AMZN. While Stamps.com and Mercadolibre, Inc sport a Zacks Rank #1 (Strong Buy), Amazon carries a Zacks Rank #2 (Buy).
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