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Originally published Monday, September 5, 2005 at 12:00 AM

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Microsoft gains ground against Linux in China

Stories about Microsoft losing ground to Linux in China are overblown, says Tim Chen, chief executive of Microsoft China. Instead, Microsoft likes to...

Seattle Times technology reporter

Stories about Microsoft losing ground to Linux in China are overblown, says Tim Chen, chief executive of Microsoft China. Instead, Microsoft likes to cast gains against Linux as evidence that China's technology industry is maturing and moving toward the proprietary-software approach championed by Microsoft.

China is an important battleground in Microsoft's competition with Linux and open-source software because of the country's size, its influence on the tech industry and growing pool of software developers.

Three of Asia's leading Linux vendors, including Beijing-based Red Flag Software, recently released a new version of their Asianux 2.0 server platform. But Chen asserts that Microsoft is gaining ground in the country's booming business-software market, and said changes are under way.

"I think Linux in China really has an issue with their business model," Chen said. "Linux, the Chinese companies, are not making money."

But it's not just small, local Linux companies Microsoft is battling. IBM, a key supporter of open-source business-software products, in February announced plans to expand its presence in China with an "innovation center" staffed with Linux experts who will help local software companies develop and test their products.

IBM asserts that the Chinese government is moving away from, not toward, proprietary-software products like Microsoft's. According to IDC statistics cited by IBM, the Chinese government last year was the largest user of Linux and accounted for 28 percent of Linux server sales.

Microsoft almost had a chance to counter IBM's China pitch on its home turf in Redmond. Chen flew to Seattle from Beijing last week to participate in meetings with China President Hu Jintao. But Hu's trip to the U.S., which would have taken him to meet with President Bush this week, has been postponed in the aftermath of Hurricane Katrina.

Chen, a former Motorola executive, and other Microsoft executives had planned to show Hu examples of Microsoft technology, outline opportunities in China and discuss obstacles, such as rampant software piracy.

In an interview Friday, Chen said there are signs that the piracy situation is improving. He said Chinese companies are seeking Microsoft services along with legitimate copies of its software.

Chen, 49, grew up in Taiwan, then attended graduate school at Ohio State University and the University of Chicago. He worked nine years at AT&T's Bell Labs, then joined Motorola.

He was chairman of Motorola's China subsidiary until Microsoft hired him in late 2003.

As CEO of Microsoft China, Chen leads 1,200 employees who build, sell and support Microsoft products in a country that may someday become the world's largest market for software.

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In the interview, Chen discussed Microsoft's challenges and opportunities in China. Here's an edited transcript.

Q: What is the state of Microsoft's relationship with the Chinese government?

A: I think it's great. We have done some work with the government in the past few years in terms of setting alliances with the Chinese partners. We've actually helped the Chinese software industry to set up a more international way of doing business.

We also contributed to education. We have programs in rural areas and are donating some computers to classrooms. We also have a lot of programs with higher education.

Those things I would say enhance our tie with China, as one of the most important markets.

Q: What is Microsoft's reputation in China?

A: The environment in China is a little bit different, culturewise. I would say the young people in China really adore Bill [Gates]. I think the business community always has a mix [of opinions]. People view us as doing a lot of things, but I think most of the people recognize we're a great company.

Q: How is Microsoft countering the threat from Red Flag Linux and other open-source products in China?

A: Last year was very interesting in China. Our server growth was faster in terms of growth rate than Linux. I think in China the companies are looking at upgrading information-technology infrastructure and while they're doing that, many people think working with Microsoft is easier because you get a lot of support in our server systems. I think we provide value as a total package.

Q: What about the supposed requirement that Chinese government and military agencies buy Linux?

A: I don't think there is a requirement there. We have many e-government projects within China.

Q: There has been a lot of turnover among executives at Microsoft China, such as Wu Shixiong, head of marketing, who left for eBay. Why are they leaving and what are you doing about that?

A: Actually that's exciting. We're being viewed as the company that has the best talent in China. Our chief marketing officer went to eBay as president, one of our managers went to Trend Micro. I think this is good — we would like to develop the talent. The people who left, left on good terms.

Q: How is the battle against software piracy in China proceeding, and what should the government do now?

A: The government has pretty much agreed [on the problem] and has taken action in the past. They realize that to develop the software industry and also to develop the IT industry, intellectual-property protection is important, not just to a foreign company like us but also to the local companies that develop their own product.

Brier Dudley: 206-515-5687 or bdudley@seattletimes.com Times reporter Kristi Heim contributed to this story.

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