Microsoft readies low-cost Windows Server OS

Microsoft Corp. is readying a new low-cost version of Windows Server to give customers a server operating system similar to client operating systems that run on low-cost PCs.

Microsoft plans to release “something akin to” a netbook version of Windows, but for servers, not PCs, over the next month or two, Microsoft CEO Steve Ballmer said on a call with members of the financial community on Tuesday.

He said that although there is not high demand at the moment for netbook-like server hardware, declining prices in the server market make a low-cost operating system an attractive option for customers.

“We don’t exactly have a netbook phenomenon, but if somebody can buy a $500 server, they’re a little loath to spend $500 for the server operating system that goes with it,” Ballmer said.

He described the software as a “low-cost, low-price, low-functionality Windows Server SKU” called “Foundation Edition” but did not offer more details.

Microsoft also posted a blog entry on its Windows Server Division Weblog reiterating Ballmer's comments, but the company still did not provide specifics about the product.

Microsoft has a range of Windows Server offerings to suit the needs of different customers, but Forrester Research Inc. analyst Chris Voce said the company sees a gap in its portfolio at the lowest end of the market. For some customers, even its Small Business Server product — which bundles Windows Server with Exchange Server, SQL Server and other software — is too much, he said.

“They want to make sure Windows Server is as flexible as it can be,” Voce said. He added that he is aware that Microsoft is readying the new Windows Server SKU but is not at liberty to discuss specifics.

Microsoft's revenue has been affected by the decline in purchases of full-featured PCs in favor of low-cost netbooks, which don't provide as much margin for the company as sales of Windows on PCs do. Furthermore, netbooks run both Linux and Windows XP, the latter an eight-year-old operating system, so Microsoft's software does not have as dominant a position in the netbook market as it does among PCs.

Windows Vista, XP's successor, has too large a hardware and memory footprint to run well on netbooks. However, Microsoft said that Windows 7, which will be out later this year or early next, will be netbook-friendly.

Ballmer spoke to the financial community this week to give them an update on Microsoft's financial outlook for the remainder of the year. He said that the company expects PC sales to continue to be slow and the economy to remain challenging for the foreseeable future and that Microsoft will adjust its internal expectations accordingly. The company is not providing public financial expectations for the rest of its fiscal year, which ends June 30.