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Microsoft Invests In China R&D, Eyes Mobile Uptake

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China's economy is flagging, but it remains a bright spot for global consumer companies. Microsoft is the latest to trumpet its expansion plans in China, where its desktop software is ubiquitous, though not necessarily paid-for. Ralph Haupter, the company's new CEO for Greater China, held a press conference Thursday to lay out the company's 'go big' strategy, which includes over 1,000 new Chinese hires, more R&D spending (up 15% from $500m annually) and a beefed-up sales network across the world's largest PC market. China is also seeing a boom in smartphones, which is where Microsoft has high hopes for Windows 8, its new-and-improved operating system. Haupter argues that developers are latching onto its potential for desktop and mobile apps, even if it's currently outgunned by Apple O.S. and Android in handset sales. "We respect that we have two players in the market which have a strong role, and we feel ready to attack and have different offers to basically change the game plan," he said. Windows 8 will be launched on Oct  26, but beta versions are already available, and Haupter said that Chinese developers have been quick to try the new system. "There's a lot coming [in Windows 8] that will change the game," he said.

However, Microsoft's mobile prospects are linked to those of Nokia, which this week unveiled two flagship Lumia smartphones that run on the new Windows platform. Nokia desperately needs a hit to reverse its sliding fortunes and counter the assault of Apple and Google/Android. So, too, does Microsoft, as more consumers switch to mobile devices. No wonder, then, that CEO Steve Ballmer made a brief appearance at Nokia's launch event on Wednesday in New York. He must be hoping that Lumia will be a turnaround story for troubled Nokia and a leg-up for Windows 8. It might also encourage other hardware firms to adopt an operating system that will be showing up on desktops and laptops over the next year or so. Investors don't feel quite so sanguine about Nokia's revival - its stock tumbled 16% on Wednesday.

Haupter argues that Microsoft's strength in cloud computing, which its sales network in China is pushing hard to corporate clients, makes it a natural fit for a mobile-oriented era in which consumers may elect to only carry a single wireless device. Within four years, that will be hundreds of millions of such consumers in China alone. Of China's estimated 538 million online population, 70% use wireless devices, according to the China Internet Network Information Center. What operating system they use, and where developers flock, matters greatly to Microsoft. That's why its additional R&D budget will be ploughed into China-specific software, not just global projects that run on all Microsoft platforms. The plan to hire 1,000+ employers has received a warm reception from Chinese netizens, particularly after Motorola recently announced mass layoffs in China following its acquisition by Google. "Good! I hope there's an opportunity there for me in the future," wrote 'ZengJielongV' on his microblog.

-- Research by Jin Yanfeng