Microsoft is unlikely to expand its business in China until the Chinese government takes further steps to protect intellectual property.
Microsoft's chief operating officer Kevin Turner said while there was a 98% usage of Microsoft products in China only 10% was paid. He indicated that although Microsoft would like to expand its operations in the country, it was hesitating until there was "more respect for intellectual property".
Turner said that money from selling products helped to protect Microsoft's capacity to spend on new products. He said the software company would raise its R&D spend to $9.5bn this year despite the recession, $3bn more than its closest rival in the IT sector, giving it the biggest R&D budget in the world.
Turner said that the world economy had been "reset" during the past 24 months. It was the first time in the company's 34-year history that it had not experienced double-digit growth, and had exposed "mediocrity" in the organisation.
"Frankly, we didn't cope well with shrinking, and it's not something we plan to get good at," Turner said.
He predicted a return to market growth this year, but said the growth curve would not be hockey stick-shaped. "The worst is behind us, but we are taking a conservative outlook," he said.
Microsoft has redeveloped its entire product line to take cloud computing into account and to incorporate it. According to Turner, Office 2010 will launch later this year and will support web apps out of the box.
Microsoft expects to sell 300 million copies of the Windows 7 operating system this year, adding to its 90 million sales to date.
And a new version of Xbox will incorporate Wii-like body controls that Turner said would revolutionise computer gaming.
He was also excited about Microsoft's Bing search engine, saying that it was increasing market share each month in a competitive market.
Turning to mobile telephony, Microsoft's least successful market, Turner said the launch of Windows Mobile 7 at the Mobile World Congress had been well received by critics. It integrates cloud with mobile and "brought Xbox to life". New features included a user interface that made mobile browsing "an incredible experience".
"Windows Mobile 7 is a very important release to get right," Turner said. He did not mention how many handset makers had signed up to offer the operating system.