Microsoft is preparing a cut-down version of Windows XP for users that want to upgrade their operating system but not their PCs.

The software, codenamed Eiger, will be based on Windows XP SP2 Professional and is designed for server-centric computing environments. It can run on a system with a Pentium II processor, 128MB of RAM and a 500MB hard drive, said Barry Goffe, a group product manager at Microsoft.

"There is a set of customers who have old hardware and who want to try to eke a little more value out of that hardware," Goffe said.

The Eiger product is intended for large companies rather than consumers or small businesses - those using older PCs with older versions of Windows, such as 95, 98 or NT 4.0.

By upgrading, users will gain management features such as Active Directory and Group Policy Management. Also, the older Windows versions could be a security threat because Microsoft no longer provides patches for the operating systems. As Eiger is based on Windows XP, users will be able to plug security holes with patches supplied by Microsoft.

Eiger is being designed to run server-based applications. It won't run Office or line-of-business applications locally, Goffe said. Server-based applications can be reached through Microsoft's or third-party terminal services clients and mainframe terminal emulation.

Eiger will also include Internet Explorer for access to Web-based applications and Windows Media Player, Goffe said.

For further manageability, Eiger will support Microsoft and third-party security and management products. For example, it will work with Microsoft's SMS and WSUS systems management and patching products.

"Customers are primarily concerned about security. They are looking for ways to provide a more secure infrastructure," Goffe said. "The best thing that they can do is to buy a new PC with Windows XP. However, there are customers who aren't in the position to buy a new PC."

Goffe has come across organizations in government, manufacturing, health care and financial services that would be interested in Eiger, he said. For example, one school system with 200,000 PCs would rather spend money buying text books and paying teachers' salaries than buying new PCs, he said.

"For those customers, today there really isn't a good solution. They can't take Windows XP and run it on those old PCs. It won't work," he said. "So Eiger is designed specifically for those customers."

Microsoft has not yet decided when it will ship Eiger. The company plans to have a first beta test version ready later this year, and a technical preview version is being sent to a very small number of customers this week, Goffe said. Pricing has yet to be determined.