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Start-up launches low-cost Linux PCs

Linare, a company that integrates computers and software, is selling systems costing $199 with its own version of Linux.

A start-up located near Microsoft's headquarters unveiled an effort to sell super-cheap Linux computers to home consumers.

The 30-person company, Linare, on Monday began selling systems for $199 with its own version of Linux, company Chief Executive Soma Sundaram said. Linare, founded in 2000 and formerly known as Aureex, integrates computers and software.

Linare's system uses a 1GHz Intel-compatible Via Technologies processor. A $249 2GHz Advanced Micro Devices Athlon model is being planned for August. The systems have 128MB of memory, a 20GB hard drive, no monitor, the KDE graphical interface, and the OpenOffice software suite.

The Bellevue, Wash.-based company isn't the first to try to use the freely available operating system as a foundation to take on Microsoft--efforts that haven't encroached far on the Redmond, Wash., behemoth's turf. But Sundaram believes some differences will mean his company will be able to thrive.

For one thing, Linux is a more mature product with better acceptance now than when companies such as Ebiz Enterprises tried but failed to make a go of cheap Linux computers. For another, Linare will try to offer better technical support than do current $200 PC makers by outsourcing technical support to employees in India who don't cost as much to hire. It will also sell its products in India, not just to countries such as the United States, where Microsoft holds more sway, Sundaram said.

"Because we are going to keep the operating expenses low, it gives us a good profit margin," Sundaram said.

Analysts don't foresee an easy time for Linare in mature markets such as the United States but give the company better odds in India.

"What they're doing is bottom fishing for consumers who haven't yet bought a PC only because of price point," said IDC analyst Roger Kay. "My sense is that most people who are culturally attuned to the PC market have bought PCs, one way or the other. Of those who have not bought, there are not that many who haven't bought them purely for price reasons."

Things are different in India, though, Kay said. "The Indian market is going to be very price-sensitive. And they may be less (concerned about) compatibility, since they don't have as huge an infrastructure tied into Windows." And despite a large middle class, Indians don't buy as many computers as do United States residents. "They're called the software powerhouse of Asia, but they take only 2 million units a year," he said.

India's government is partial to open-source software such as Linux, and IBM sells a Linux PC there. "If you look at the Indian market, there are lots of people who don't have computers," Sundaram said, and those who do often have older operating systems such as Windows 3.1 or Windows 95.

Giga Information Group analyst Stacey Quandt said Linare could also face distribution challenges. Low-cost outlets such as Wal-Mart offer inexpensive Linux computers online, and they may well also offer them in stores soon.

Linare has distribution plans under way, though. "We are in the process of signing a contract with Amazon to push the product," Sundaram said. And because the company sees itself more as a software company than as a hardware company, it's eagerly pursuing partnerships with established computer makers.

"We are not just going to push our software with our own machines, but through various different channels as well as by means of partnering with other companies like IBM and Gateway," Sundaram said.

While Red Hat and SuSE may be strong in Linux used on servers, Sundaram said he believes the competition is open for PCs. "There is no Linux market leader at this point in the desktop arena."

On its own, the Linare Desktop Software product costs $19.95, including round-the-clock technical and installation support. There will be a free downloadable version as well. "We are primarily focused as a software company," Sundaram said.

The company expects to expand to at least 100 employees by the end of the year if it gets its funding and meets its sales projections. In July, Aureex will get new management as Sundaram takes over Linare, he said.

The company will launch its product in three locations--North America, the United Kingdom and India--but plans to expand to 18 countries by the end of the year.

Linare's Linux product is based on the 2.4.20 kernel. It includes many common add-ons that are widely available with other Linux products as well: the WineHQ software for running Windows on Intel systems and various programs for playing digital audio, sending instant messages, writing CDs, videoconferencing, sending e-mail, and synchronizing data stored on handheld computers.