The move is an acknowledgement of the first viable competition from Linux to Microsoft's Windows client business, due mainly to the use of Linux on netbooks, which are rising in prominence as alternatives to full-sized notebooks.

"Netbooks opened Microsoft to the possibility that some other OS could get its grip on the desktop, however briefly," said Rob Helm, director of research for Directions on Microsoft. "Now it's alert to that possibility going forward."

In its annual Form 10-K report for the fiscal year ended June 30, Microsoft cited Red Hat and Canonical -- the latter of which maintains the Ubuntu Linux distribution -- as competitors to its client business, which includes the desktop version of its Windows OS.

Previously, Microsoft had only noted competition from Red Hat to its Server and Tools business, which includes the Windows Server version of the OS for server hardware, in its 10-K reports.

"Client faces strong competition from well-established companies with differing approaches to the PC market," Microsoft said in the filing. "Competing commercial software products, including variants of Unix, are supplied by competitors such as Apple, Canonical, and Red Hat."