As the release of low-cost laptops based on Intel's upcoming Atom processor draws near, Microsoft is getting boxed into a corner.

Microsoft plans to stop selling most Windows XP licences after 30 June, 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?

See our Laptop Advisor website for expert reviews of today’s best laptops, plus read our essential advice to make sure you choose the right specs

The poster child for the low-cost laptop is the Asus Eee PC, which hit the market in October last year and runs the Xandros distribution of Linux.

Consumers embraced the laptop, which uses a version of Intel's Celeron M processor, for its small size and ability to perform basic tasks such as web surfing and email. It became something of an overnight sensation, and that success caught the attention of other hardware makers, including top-tier PC vendors.

The Asus Eee PC's success wasn't possible without Intel's support. The chip maker was initially hesitant to embrace the 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 (£125) to $300 (£150). They 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 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 30 June 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 2GB of solid-state storage instead of higher-capacity, more costly hard disks.

NEXT PAGE: More expert opinion on the steps Microsoft should take

  1. How Microsoft can stay in the low-cost laptop market
  2. What steps Microsoft should take

Visit PC Advisor's Microsoft spotlight for the latest Microsoft news and opinion

Visit Business Advisor for reviews of the best IT products for your business.