Advertisement
Canada markets closed

  • S&P/TSX

    21,885.38
    +11.66 (+0.05%)
     

  • S&P 500

    5,048.42
    -23.21 (-0.46%)
     

  • DOW

    38,085.80
    -375.12 (-0.98%)
     

  • CAD/USD

    0.7323
    +0.0000 (+0.00%)
     

  • CRUDE OIL

    83.85
    +0.28 (+0.34%)
     

  • Bitcoin CAD

    87,987.06
    +211.80 (+0.24%)
     

  • CMC Crypto 200

    1,391.48
    +8.90 (+0.64%)
     

  • GOLD FUTURES

    2,346.30
    +3.80 (+0.16%)
     

  • RUSSELL 2000

    1,981.12
    -14.31 (-0.72%)
     

  • 10-Yr Bond

    4.7060
    +0.0540 (+1.16%)
     

  • NASDAQ futures

    17,764.25
    +196.75 (+1.12%)
     

  • VOLATILITY

    15.37
    -0.60 (-3.76%)
     

  • FTSE

    8,078.86
    +38.48 (+0.48%)
     

  • NIKKEI 225

    37,780.35
    +151.87 (+0.40%)
     

  • CAD/EUR

    0.6826
    +0.0005 (+0.07%)
     

Microsoft to Offer Free Windows 10 Update to China - Analyst Blog

Zacks Equity Research
Updated

In an effort to tackle a market plagued by piracy and regulatory issues, software developer Microsoft Corporation MSFT will offer free Windows 10 upgrade to Chinese users, irrespective of whether they are using licensed or unlicensed versions of its operating system (OS).

Also, Microsoft has collaborated with three major Chinese software firms – Lenovo Group Ltd LNVGY, Tencent Holdings Ltd and Qihoo 360 Technology Co QIHU – to offer free upgrades to their joint customer base

Why the Move?

Microsoft is basically putting in efforts to drive adoption of Windows 10 in China, which is touted as the one of the most significant markets for all tech companies. Windows 10 is expected to be released worldwide somewhere around this summer in 190 countries and in 111 languages.

Windows has more than 1.5 billion users around the world and in China hundreds of millions of PCs have Windows. Of these, two-thirds of all PCs use the pirated versions of the software. Recent studies illustrate that three-quarters of all PC software is not correctly licensed in China. Therefore, the move is an aggressive strategy by Microsoft to get genuine versions of its software installed on systems in China.

Microsoft has long been struggling to deal with the issue of piracy, which is extraordinarily common in developing markets, especially China. Pirated versions of its OS are extensively available for download on third-party websites or in the country’s several technology marketplaces. This has resulted in China’s heavy dependence on older versions of the software.   As per data firm StatCounter’s estimation, more than half of the Chinese market still uses Windows XP software.

In fact, to add to the woes, the Chinese government has even banned the use of Windows 8 on government computers largely due to concerns over upgrade costs.

In January, Microsoft announced its plans to offer free upgrades of Windows 10 to users of Windows 7, Windows 8 and Windows 8.1 in an attempt to retain users and push them to update their systems to its latest OS software. The software giant also intends to compensate for lost revenues by selling services such as Office over the Internet.

In addition to this, Microsoft also partnered with Chinese handset maker Xiaomi Technology Co Ltd to offer some users a trial version of Windows 10 on their smartphones. Xiaomi generally uses a form of Google Inc's GOOGL Android on its devices.

Chinese Regulators Aren’t Happy With Microsoft

Microsoft is one U.S. company that has been subjected to an enduring investigation by Chinese regulators after former U.S. National Security Agency contractor Edward Snowden revealed that U.S. products were used for the agency’s spying efforts. Microsoft, however, asserted that it did not comply with government demands for access to user email stored outside the country and intensified efforts to protect user information.

Moreover, it also faced probes for not complying with China’s business policies. In Nov 2014, per China’s Xinhua official news agency, Microsoft was asked to pay $140 million as settlement charges to the Chinese authorities for evading taxes. Microsoft however neither confirmed nor denied the reports. Microsoft has also been trapped amid the escalating mistrust between Washington and Beijing over cyber spying issues.

Microsoft doesn’t reveal results from China. But in January, company officials disclosed in a conference call with analysts that its China results were below expectations due to geopolitical issues.

Our Take

We believe that Microsoft’s latest decision to offer free Windows 10 upgrades in China will help it to battle software piracy and to sweeten its bitter relationships with Chinese authorities.

Microsoft's direct partnerships with popular local Chinese companies are intended to boost the adoption rate of Windows 10. It will also help Microsoft to bring Windows 10 to more customers and thereby expand its user base. It will also enable it to acquaint them with the benefits of using a licensed copy of Windows.

While Windows licensing revenues have been the major source of income for Microsoft, by giving Windows 10 for free, at least for the first year, Microsoft is deviating from its regular sales model for the first time. It is now shifting toward a more service-based model. So Microsoft will now leverage services such as Skype, Office 365, and Software Assurance subscriptions. But to successfully leverage these services, it needs to provide everyone the same common platform-Windows 10.

So the latest efforts are expected to help it in achieving the goal.

Microsoft currently holds a Zacks Rank #4 (Sell).


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
MICROSOFT CORP (MSFT): Free Stock Analysis Report
 
QIHOO 360 TECH (QIHU): Free Stock Analysis Report
 
LENOVO GRP LTD (LNVGY): Get Free Report
 
GOOGLE INC-CL A (GOOGL): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research