Microsoft is hopeful that this low-cost, low-price, low-functionality alternative will take advantage of OEMs wanting to design cheap or netbook-like hardware. The software will be known as the be the Windows Server Foundation Edition.

Source: PC Magazine

Yes, Microsoft is being hit like so many others by the global economic crisis but one of the major reasons cited for its fall in profits is none other than the netbook. The weakness of the PC market and the shift of customers to cheaper netbooks has contributed to the fall in profits.

Most Windows-based netbooks use the OS they can handle, that being the older XP, and of course that is considerably cheaper than Vista — the OS that netbooks by large are not powerful enough to run well — and thus it means less profit for Microsoft.

Microsoft still posted a profit of $4.2 billion but since that was down from $4.7 billion the previous year, it seems to have set off alarm bells and many workers have already or will soon find themselves unemployed.

According to Mobile Computing News though, Microsoft is still taking Linux seriously – at least as far as netbooks are concerned. Perhaps not content with an estimated share of over 70% in the netbook market, they have come up with a plan to work their way on to even more netbooks.

We all know that Windows Vista and netbooks are not a good combination. Vista is generally too powerful and subsequently too sluggish on netbooks, demanding resources the majority of netbooks don’t have. This is why Windows XP is used with most netbook releases, but XP is not as efficient as the Linux OS. Microsoft has shrewdly opted to solve this problem by optimizing its new Windows 7 operating system to run smoothly on netbooks.

Windows 7 is scheduled for a full release in 2009 and is expected to be a lot better in terms of CPU usage and system memory usage compared to Vista. With that in mind, things look pretty grim for Linux, which could find itself truly demoted to a place on the netbooks of the niche, hardcore consumer.

An Asus official has said that response to Linux in the country has been poor, so the company has decided to eliminate the option and make the Philippines a Microsoft mad nation, with all of Asus’ efforts from now on set to be put into Windows machines.

One of Asus’ original reasons for using Linux, like other manufacturers, was the extremely cheap cost of loading computers with them, but Microsoft – ever conscious of the market – is now offering discounted Windows XP licenses for netbooks and other “ultra low cost PC” makers. If this is a sign of things to come across the world, the story on netbooks threatening Microsoft’s profits may be made null and void quickly. But who would expect anything less of Microsoft than to quickly solve a problem?

The article cites netbooks as the fastest-growing segment in the PC industry and claims that their emergence is eating into Microsoft’s profits. Windows sales fell short of forecasts in the last quarter, causing Microsoft to cut growth projections, and actually admit that netbooks are the main cause for this. Netbook manufacturers who do use Windows – still 70% of models (but significantly lower than the 90% of PCs that also use it) – tend to use old versions of the operating system.

Microsoft is taking this seriously and is already taking steps to ensure it is ready for the netbook boom. Windows 7, the scheduled successor of Windows Vista, will work much better with netbooks according to Senior Vice President Jon DeVaan. DeVaan said, “People will be pleasantly surprised and excited” by how Windows 7 runs on low-cost machines. We’ll do well on those kinds of machines.”

Despite Microsoft’s initiative to stop this growing problem, Bloomberg claims that Windows will still be a tough sell for PC makers trying to develop the cheapest machines possible. Jenny Lai, a Taipei-based analyst at CLSA Ltd., says that Linux costs just $5 to put on computers, compared to with $40 to $50 for XP and about $100 for Vista, a huge difference.