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Chinese Officials Give Microsoft 20 Day Deadline to Respond to Antitrust Issues

Sep 02,2014  Company News  Comment: 0

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Philadelphia, Pennsylvania – (StockNewsDesk) – 09/02/2014 — Antitrust regulators in China have given Microsoft 20 days to respond to questions related to compatibility and bundling issues of its Windows operating system and Office software following an antitrust probe into the company’s practices.

This follows the actions against Apple and Qualcomm that were murky in terms of its nature and motivation, leading to the prohibition among many government departments from purchasing Apple products and continued negotiations between Qualcomm and anti trust regulators.

China has also taken aggressive stances against Google and Facebook from entering its market, and the targeting of US companies has intensified after revelations they cooperated with the NSA. After this came out, following Edward Snowden’s leaks in The Guardian, many foreign governments immediately took to criticizing these tech giants.

China took it even further by announcing plans to build their own operating system to compete with Microsoft’s Windows and Apple’s operating systems. Additionally, the Chinese government has banned any government offices from installing Windows 8.

The State Administration for Industry and Commerce posted on its website that Microsoft needs to respond within 20 days regarding these issues. The statement was made public following a meeting with high level Chinese executives, including David Chen, vice president of legal and corporate affairs.

In a statement, Chen responded, “We strictly adhere to the relevant laws and rules in China and we have been actively cooperating with SAIC’s investigation.” There has been criticism that China is using the antitrust laws to target US based corporations with invasive tactics, such as surprise inspections and the seizing of emails, data, and other potentially sensitive information.

Although the exact nature of the SAIC’s complaint is unclear, one highlighted issue has been the use of verification codes, which are used by Microsoft to ward off piracy. Software piracy is rampant in China and socially accepted. Many are questioning this effort by the SAIC as being more about targeting a specific, dominant company rather than promoting competition.

For Microsoft, this seems like a rerun of its battles in court against the United States Government and European Union, which was targeting the company’s dominance in operating systems. Regulators charged that Microsoft used that dominance to promote Microsoft Office, Internet Explorer, and other programs, giving it an unfair advantage against other software companies. Although, eventually it didn’t go anywhere, there were rumblings that Microsoft would be forced to split up into multiple companies.

Although this issue has been going on now for many weeks; it has done little to affect Microsoft’s stock price. The company’s stock has been a high flyer and looks to take out its all time highs. Here is a three year, weekly chart:

MSFT

If one were to account for the dividends paid out over this time period, then Microsoft is well past its all time highs. There are a few catalysts for the move higher. One is that the company has managed to find new avenues for growth while its “cash cows”, Office and Windows, continue to basically print money.

Even the company’s efforts in mobile communications and an alliance with Nokia have begun to pay dividends with the Windows phone gaining some traction. However, the biggest benefit has been its success in offering cloud services and pivoting towards enabling companies to live on the cloud. New CEO, Satya Nadella has made it clear that Microsoft’s future is in the cloud.

Another positive tailwind for Microsoft has been its juicy dividend of $1.12 per share and yield of 2.60%. With interest rates continuing to drop and Microsoft’s stable dividend, steady cash flows, and strong balance sheets, Microsoft stock has almost become a bond like instrument for investors looking for yield. People piling into Microsoft shares for the yield also have the effect of driving the stock price higher.

Below is a six month, daily chart of Microsoft:

daily-chart-of-Microsoft

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