Responding to reports about a new generation of low-cost PCs that are threatening sales of Microsoft's operating systems, Microsoft CEO Steve Ballmer said this week that the company has no plans to lower prices. Despite the fact that its Windows XP Professional OS retails for $200, the same price as an entry-level LindowsOS-based PC at Wal-Mart, the software giant says that the Windows price is based on the cost of developing the platform and that consumers who want Windows will pay extra for it.

In fact, Microsoft CEO Steve Ballmer suggests that something sinister is going on, and that the cost of that LindowsOS system is, in fact, more than $200. "Somebody is subsidizing that hardware," Ballmer said during an appearance at a Gartner technology conference in Florida this week. "Somebody's losing \[money\]. People know what power supplies and processors cost." And he should know: That's exactly the strategy Microsoft, Sony, and Nintendo employ in the video game market. The idea is to seed the market with money-losing hardware, but make it the difference in software sales. Is this the case with Wal-Mart's PCs?

It could be. Retail giants such as Wal-Mart often purposefully lose money on certain products in order to lure new customers into the store. Toys-R-Us sold diapers at a loss for over a decade, for example. But PCs are big ticket items, and low-end PCs from major PC makers like Dell and Gateway cost more than twice that figure. If Wal-Mart is really doing such a thing, it could be a first in the retail industry.

Regarding Windows, Ballmer points out that the price of the OS is already pretty low. Despite high retail pricing, most copies of Windows are actually sold with new PCs, and the price of XP Home Edition to PC makers is around $50, a cost Ballmer says has remained steady for about seven years. Cutting the price of Windows 10 to 40 percent isn't going to sell more PCs, he notes. "Will \[cutting the price of Windows\] really drive a lot of demand?" he asked. "No. Will it wipe out our ability to do innovative work like Windows XP? \[Yes,\] that it will do."