Many low-cost laptops are aimed at the developing world
Microsoft is cutting the cost of putting Windows XP on low cost laptops.
The price cuts will only be available for ultra-portable laptops that meet a strict set of specifications.
The move is widely seen as an attempt by Microsoft to bolster its market share in one of the PC industry sectors showing growth.
Low-powered laptops, such as the Asus Eee PC, are proving hugely popular in developed nations and in projects trying to bridge the digital divide.
News group IDG reports that Microsoft plans to charge PC makers selling to India and China $26 (£13.27) to put a copy of Windows XP Home on a low-cost laptop. For machines sold in developed markets, such as the UK or US, the price will be $32.
A retail copy of Windows XP Home sells in the UK for about £55 ($108) - though the price PC makers pay for the software is likely to be lower.
The low prices apply only to machines that have no more than 1GB of RAM; a hard drive up to 80GB in size; a processor running no faster than 1GHz; a screen no larger than 10.2in (25cm) and no touch screen.
Market research firm IDC predicts that sales of machines with such specifications, which it dubs ultra low-cost notebooks, will grow from 500,000 units in 2007 to more than 9m in 2012.
It predicts such devices will capture a big slice of the education market as they are used in projects to improve the prospects of children in developing nations.
The devices are also catching on among those looking for a cheap computer they can use while out and about. Machines such as the Asus Eee retail for about £220.
Many of these machines use open source software such as Linux as an operating system.
Microsoft is offering XP on such devices because they are too low-powered to run Vista - the latest version of its Windows operating system.
In April Microsoft announced that it was extending the life of XP on low cost laptops until 2010. The software will stop being sold on desktops and laptops on 30 June.
Under Microsoft's Unlimited Potential scheme the company lets governments get copies of Windows XP Starter Edition, Microsoft Office Home and Student 2007 for only $3 (£1.50) if it provides PCs for schools.