<HTML><HEAD> <META name=GENERATOR content="MSHTML 8.00.6001.19019"></HEAD> <BODY> <DIV class=story-header> <DIV class=story-headline> <H1 class=heading>Microsoft's revenues in China savaged by piracy <!-- google_ad_section_end(name=story_headline) --></H1></DIV><!-- // .story-headline --> <DIV class=story-info> <UL> <LI class="byline first ">Owen Fletcher and R Jai Krishna <LI class="source "><SPAN class=source-prefix>From:</SPAN> <CITE>The Wall Street Journal </CITE> <LI class="date-and-time last"><SPAN class=datestamp>May 27, 2011</SPAN> <SPAN class=timestamp>8:22AM</SPAN> </LI></UL></DIV><!-- // .story-info --> <DIV class=story-header-tools></DIV></DIV> <DIV class="js-socialise js-socialise-linkedin-iframe js-ready">&nbsp;</DIV> <DIV class="js-socialise js-socialise-tweetmeme-iframe js-ready">&nbsp;</DIV> <DIV class="story-body lead-media-small"> <DIV class="article-media article-media-small media-count-1 first-image-316w237h"> <DIV> <DIV class="image "> <DIV class="image-frame image-316w237h"><IMG alt="aus bus pix Ballmer" src="cts869993-aus-bus-pix-ballmer.jpg" width=316 height=237> </DIV><!-- // .image-frame --> <P class=caption><SPAN class=caption-text>Microsoft chief executive Steve Ballmer in Beijing </SPAN><SPAN class=image-source><EM>Source:</EM> Getty Images</SPAN> </P><!-- // .caption --></DIV></DIV><!-- // .tabs .js-tabbed --></DIV><!-- // .article-media --> <DIV class=story-intro> <P><STRONG><!-- google_ad_section_start(name=story_introduction, weight=high) -->MICROSOFT'S revenue in China this year will be about 5 per cent of what it gets in the US, even though PC sales in the two countries are almost equal, chief executive Steve Ballmer said. <!-- google_ad_section_end(name=story_introduction) --></STRONG></P></DIV><!-- // .story-intro --><!-- google_ad_section_start(name=story_body, weight=high) --> <P>Mr Ballmer's remarks offered new details on the scale of the software giant's struggle with piracy.</P> <P>Speaking to Microsoft staff in Beijing, Mr Ballmer rejected the argument, common in China, that many Chinese consumers use pirated software because authentic versions are too expensive.</P> <P>"I'm not saying everybody in China could afford to buy a PC... but if you can, you could afford the software," he said.</P> <P>The Microsoft chief is under pressure to improve the company's financial performance and revive its flagging stock.</P> <P>Microsoft, which lost its crown as the most valuable tech company to Apple last year, is now in danger of slipping behind International Business Machines.</P> <DIV class=story-sidebar> <DIV id=sidebar-start class="assistive sidebar-jump"> <P>Start of sidebar. <A href="http://www.theaustralian.com.au/business/news/microsofts-revenues-in-china-savaged-by-piracy/story-e6frg90x-1226063873307#sidebar-end">Skip to end of sidebar.</A></P></DIV> <DIV class="group item-count-1 sidebar-related-content"> <DIV class=group-content> <DIV class="item ipos-1 irpos-1"><!-- google_ad_section_start(name=story_related, weight=medium) --> <DIV id=story-related-empty></DIV><!-- google_ad_section_end(name=story_related) --></DIV><!-- // .item .ipos-1 . irpos-1 --></DIV><!-- // .group-content --></DIV><!-- // .group item-count-1 --> <DIV id=sidebar-end class="assistive sidebar-jump"> <P>End of sidebar. <A href="http://www.theaustralian.com.au/business/news/microsofts-revenues-in-china-savaged-by-piracy/story-e6frg90x-1226063873307#sidebar-start">Return to start of sidebar.</A></P></DIV></DIV><!-- // .story-sidebar --> <P>On Wednesday, hedge fund manager and Microsoft investor David Einhorn said it was time for a new chief executive at the software giant.<BR><BR>As the PC market matures, Microsoft has struggled to keep pace with rivals in the tablet and mobile phone markets.</P> <P>Mr Ballmer hinted that Microsoft will disclose its plans for software for tablet devices soon.</P> <P>He took a swipe at rival Google, saying it "has taken a failed approach so far" to tablets, while also acknowledging that Apple's strategy with the iPad has been successful.</P> <P>Mr Ballmer also acknowledged some telecom carriers are concerned about a potential drain on their business from Skype, which Microsoft this month said it plans to acquire for $US8.5 billion  although he also rejected those concerns as unwarranted.</P> <P>Mr Ballmer's remarks on China shed fresh light on the damage Microsoft believes piracy is causing it in the world's No 2 economy.</P> <P>The company has long complained about the problem  which has also been an increasingly central subject in US-China trade talks  but Microsoft has provided little detail on the impact.</P> <P>China's government has acknowledged problems with piracy but says it is taking steps to improve the situation.</P> <P>The chief executive said Microsoft's revenue per personal computer sold in China is only about a sixth of the amount it gets in India and that its total revenue in China is less than what it gets in the Netherlands, a country of less than 17 million people.</P> <P>"We're literally talking about an opportunity that is billions of dollars today" if China's intellectual-property-rights protection were at the level of India's, he said.</P> <P>PC sales in China will be "as big as the US market this year", he said, yet "our revenue in China will be about a twentieth of our revenue in the United States".</P> <P>The statement suggests Microsoft's revenue in China is close to $US2 billion.</P> <P>For the fiscal year ended June 30, 2010, Microsoft reported US revenue of $US36.2bn out of a world-wide total of $US62.5bn.</P> <P>A Microsoft spokesman declined to comment.</P> <P>China, already the biggest market for cars, mobile phones, and commodities such as iron ore, is on track to surpass the US as the world's largest PC market next year, according to IDC.</P> <P>This year, the market research firm projects PC unit shipments in China are likely to increase 12 per cent to 71m units, just shy of the 75m units in the US, where it expects sales to be flat.</P> <P>China's government has made some headway against piracy  albeit far less than what foreign companies want.</P> <P>Among other measures, the government has ordered all state institutions to buy licensed software, and has said it will provide funding needed to do that.</P> <P>The Business Software Alliance, an industry advocacy group, estimates 78 per cent of the PC software installed in China last year was pirated, down from 86 per cent in 2005.</P> <P>Chinese Vice Premier Wang Qishan said in a meeting with Mr Ballmer that a government campaign launched late last year has had "significant results" against violations of intellectual property rights, China's State Council said in a statement.</P> <P>Taking questions from staff, Mr Ballmer also discussed the increasingly competitive tablet sector.</P> <P>Microsoft is working on what its "unique contribution can be" in the tablet area and it will have "more news about that in the not-too-distant future," he said without elaborating.</P> <P>Microsoft has struggled to gain traction in tablets, while Google's Android software is expected to gain share in a market currently dominated by Apple.</P> <P>Market researcher Gartner predicts that about 20 per cent of the 69.8m tablet devices sold this year will use Android, second to Apple's operating system, with 69 per cent.</P> <P>By 2015, Gartner forecasts, 39 per cent of the 294.1m tablets sold will use Android, compared with 47 per cent using Apple software.</P> <P>Google didn't immediately reply to a request for comment.</P> <P>On Skype, Mr Ballmer said Microsoft is likely to integrate "real (Internet Protocol)-based communication into a phone," though the company would need regulatory approval first and some telecom operators "want to make sure that that's not the only phone we offer".</P> <P>Skype lets users make phone calls via internet networks, which some operators worry could enable users to avoid paying operator fees.</P> <P>Mr Ballmer dismissed those concerns.</P> <P>"The fact of the matter is, the best thing for the phone companies, the best thing for the consumer, the best thing for us, will be to innovate in the future of communication," he said.</P> <P>Mr Ballmer later travelled to India, where he said Microsoft is looking to work with Finnish mobile handset maker Nokia to develop "next-generation" mobile devices.</P> <P>India will be a priority market for the company, given that Nokia is a market leader in mobile handsets in the world's fastest-growing telecom market and the second-largest market after China, he said.</P> <P>"Certainly our partnership with Nokia is an important step forward with us ... but the key there is not only to innovate on software, which we will work together over time, but also work on next-generation hardware innovations with them," Mr Ballmer said while addressing a conference in New Delhi.</P></DIV></BODY></HTML>