The low-cost laptop offer Microsoft can't refuse

As the release of low-cost laptops based on Intel's upcoming Atom processor
draws near, Microsoft is getting boxed into a corner. The software company plans
to stop selling most Windows XP licenses after June 30, yet most of these low-cost
laptops won't be powerful enough to run Vista when they arrive later this year.

That leaves Microsoft executives with a choice: Do they extend the availability
of Windows XP for low-cost laptops, or possibly concede this nascent market
to Linux?

The poster child for the low-cost laptop is Asustek Computer's US$249 Eee PC,
which hit the market in October last year and runs the Xandros distribution
of Linux. Consumers in the U.S. and elsewhere embraced the laptop, which uses
a version of Intel's Celeron M processor, for its small size and ability to
perform basic tasks like Web surfing and e-mail. It became something of an overnight
sensation, and that success caught the attention of other hardware makers, including
top-tier PC vendors.

The Eee PC's success wasn't possible without Intel's support. The chip maker
was initially hesitant to embrace Asustek's push into low-cost laptops for fear
it would drive down margins for its mobile processors if users opted to buy
low-cost laptops instead of more powerful -- and more expensive -- models. But
Intel eventually decided that the opportunity to expand the size of the overall
laptop market outweighed the risks of lower profit margins, and gave its backing
to the little laptops.

Intel's support for low-cost laptops is ready to shift into overdrive. The
company's upcoming line of Atom processors, relatively inexpensive chips that
consume little power, will show up during the third quarter in small laptops
-- priced from $250 to $300 -- that will be aimed at users in developed markets
and heavily promoted by the chip maker. Intel executives want these laptops
to be cheap enough that U.S. and European consumers don't think twice about
buying them as a second computer. Most are planned to ship with either Linux
or Windows XP, even though they will arrive after Microsoft's June 30 deadline
has passed.

Windows Vista isn't a viable option in this product segment: It's too expensive
and does not work on the stripped-down hardware configurations required to keep
prices low.

"At the low end, Vista's hardware footprint is too large," said Tom
Rampone, an Intel vice president and general manager of the company's Channel
Platforms Group, noting that some low-cost laptops, such as Intel's Classmate
PC, have just 2G bytes of solid-state storage instead of higher-capacity,
more costly hard disks.

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