Lenovo will pay up to $1.3bn over the next year to pre-install Microsoft software on its computers. Of course, it is not really doing the paying: it is a Microsoft OEM and so is reselling passing the costs on, along with a little margin for itself, to its customers. So the more it pays Microsoft, the more it is making in PC sales and Office apps sell-throughs.
As China's biggest computer maker, Lenovo will occupy a special place in Microsoft's heart. This is a vast market, where most people pirate software. Lenovo is doing its bit to combat piracy in its home country. It says it was the first PC maker to pre-install Windows on all its PCs for the China market, making the move in November 2005. Selling PCs with pre-installed OSes is now a legal requirement in China, so It also waves the 'buy software' flag through marketing programs conducted in its retail stores in China.
The framework agreement with Microsoft, announced yesterday in San Francisco, was included in a group of commitments from Chinese bigwigs to buy at least $4.3bn in US technology. In a release announcing the deal, Lenovo did not say how much it is paying, but a spokesman mentioned the $1.3bn price tag to Reuters.
It seems unlikely to us that this amount is solely for Lenovo's Microsoft sales in China, but we are happy to be corrected, if wrong. ®