There are two emerging threats to Microsoft's traditional PC businesses: the growth of netbooks and potential replacement of Windows OS's on those devices by Linux or Android. Traditional PC sales are faltering in the recession (off 8% according to Microsoft's last earnings call) but netbooks have been on a tear because of their inexpensive price tag. (Apple has said it "can't" build a <$500 computer.)

Microsoft is trying to put Windows on most netbooks and has succeed in doing so across the leading OEMs. However, Android is going to begin a netbook push and chipmaker Nvidia wants to make $99 mobile Internet devices (MIDs):

NVIDIA Corporation, the inventor of the graphics processor, today introduced a new platform, based on the NVIDIA® Tegra™ 600 Series computer-on-a-chip that enables a $99, always-on, always-connected HD mobile internet device (MID) that can go days between battery charges.

This platform will enable OEMs to quickly build and bring to market devices that carriers can offer for as low as $99 —bringing broadband connectivity and all of the Web’s HD content to the masses.

The Acer Aspire has already hit that $99 "price point" but with a two-year contact with AT&T for the IP connectivity. Netbooks have become enormously popular because of how comparatively inexpensive they are. 

These low prices, <$500 (and probably <$300), are likely to continue and further erode the traditional PC market. (If not it will be because of very aggressive pricing by PC OEMs). Indeed, PC sales will likely be squeezed by a growing array MIDs/netbooks and maybe increasingly powerful smartphones.

The challenge and issue for Microsoft is whether it will be able command the same market share on those MIDs as it historically has enjoyed in the conventional PC market. The "cloud computing" model implied by the sale of netbooks makes local software less necessary -- and the machines don't have the memory to support it to the same degree. Beyond this there's the question of how much can be charged for Office and the Windows OS -- at <$300 pricing or, worse, $99 margins will be squeezed badly. 

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Related: Android’s progress elevates Google’s mobile aspirations . . . and Orange to sell LG watchphone this year in EU markets. 

Netbook maker Acer's new smartphones are out but nothing special to write home about.