Microsoft in $1.2B Windows thin margin deal with Lenovo

Stan Beer
Tuesday, 18 April 2006 19:47

IT Industry - Development

China's dominant PC maker Lenovo has announced that it will buy $1.2 billion worth of Microsoft Windows XP operating system software to pre-install on its PCs over the next year in what on the surface would appear to be a coup for Microsoft. However, it is not clear how many of these PCs will be sold in China. It also appears Microsoft will have to cut the price of Windows dramatically on the PCs that are sold in China.
While Lenovo chairman Yang Yuanqing reportedly made all the right noises yesterday, saying that 70% of of Chinese PC buyers want Windows, he also hinted that he had succeeded in squeezing Microsoft on pricing. Mr Yang said that while Lenovo PCs with pre-installed Windows would cost more than the the machines it was selling before, he said the "gap" would be very small. He said that in a previous meeting he had convinced Microsoft that it would have to give something in order to get the deal done.

Reading between the lines, in order to do business in China with Lenovo, which has more than a third of the market, Microsoft will have to practically give Windows away. Chinese PC consumers are price conscious and there is a huge black market for pirated Windows.

Mr Yang also left the door open for Linux, saying that there will be Lenovo machines pre-installed with other operating systems such as Linux. However, Linux advocates are pessimistic at the latest overtures between Microsoft and Lenovo. "Like it or not, the buyers will be paying for OEM versions of Windows, and the more Chinese vendors that do this, the less opportunity there is for Chinese consumers to buy something else. Meaning the marketplace for Linux on the desktop is being squeezed. That's what Microsoft has always done," said Con Zymaris, director of the Open Source Industry Association of Australia.