Lenovo signs $1.2bn Windows deal

Naked PCs: Microsoft has struck a deal with Chinese PC maker Lenovo which should curb the spread of unlicensed versions of Windows in the country, but could also limit the deployment of desktop Linux

Microsoft's bid to encourage PC makers not to ship machines without pre-installed operating systems got a boost on Monday when Chinese hardware maker Lenovo said it would buy $1.2bn (£680m) of Windows licences over the next year.

Lenovo and Microsoft first agreed back in November 2005 that licensed copies of Windows would come pre-installed on Lenovo machines. The deal was formally signed on Monday — ahead of Chinese president Hu Jintao's visit to America on Tuesday. Around $200m worth of Windows licences are expected to be sold in the Chinese market.

Microsoft is believed to have sweetened the deal with both China and Lenovo by offering Windows at a significantly discounted rate, according to some reports.

The Lenovo deal comes just days after the Chinese government announced that all PCs manufactured within the country must have an operating system pre-installed.

"Computers manufactured within the country's borders should have pre-installed authorised operating software systems when they leave the factory," said the government ruling.

Microsoft is opposed to the sale of PCs without operating systems, as the software giant believes that this encourages resellers and consumers to install unlicensed operating systems.

The use of unauthorised software is rife in China, and many technology companies have been lobbying the country to take action. It is believed that many Chinese consumers buy PCs without operating systems and later install cheap pirated versions. Some estimates have Chinese versions of Windows XP costing between $200 and $300.

Many have also pointed out that by curbing the sale of naked PCs Microsoft is also damaging the potential market for open source operating systems such as Linux. They argue that consumers should be able to buy PCs without Windows — which could be up to 30 percent cheaper than PCs with the Microsoft operating system — and then install whatever platform they wish.

Earlier this month, ZDNet UK reported that Microsoft was putting pressure on UK computer vendors not to sell naked PCs. Microsoft's actions were strongly opposed by the Free Software Foundation, which hopes that resellers won't be influenced by Microsoft's warning that selling naked PCs could pose "a risk" to their business.

The Chinese President is set to dine with Microsoft chairman Bill Gates at his Seattle mansion on Wednesday night, before meeting US president George Bush on Thursday.

Up to the point China joined the World Trade Organisation in 2001, pirated copies of Microsoft software were in common use, including in government agencies. Now it's part of the WTO, China must replace unlicensed copies of Microsoft software with licensed versions or open source alternatives.

Chinese local and national governments have deployed open source software, and those migrations involving Linux have been given the most publicity. National government agencies using Linux include the National Ministry of Science, the Ministry of Statistics, and the National Labour Unit. Local governments using Linux include the municipal government of the Chinese capital Beijing, which is deploying 2,000 Linux desktops.

ZDNet UK's Ingrid Marson contributed to this report.

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