HP has dealt a blow to Microsoft's new licensing strategy by axing its software on home PCs in the US.

From September HP's Pavilion range of desktop PCs will ship with pre-loaded versions of Corel's WordPerfect 10 and Quattro Pro 10, replacing Microsoft Works, a cut-down version of the Office software suite.

The shift away from Microsoft comes as vendors 'look to increase the value' they can offer customers, said Steve Houck, executive vice president of strategic relations, Corel.

HP's move reflects stiff competition in the low end PC market. With component, hard drive and processor pricing dropping, the cost of software shipped on the units has remained high.

Dell has also announced it is to ship Corel software, rather than Microsoft on its Dimension 2300 and Inspiron 2600 desktop machines.

These moves indicate growing disgruntlement among PC manufacturers with the deals they are getting from Microsoft following the changes it has made to its licensing procedures, according to Steve Barrie, chief analyst at Bloor Research.

Many organisations have viewed the changes to software licences as 'price hikes', said Peter McCartney, Microsoft alliance development manager at corporate reseller Computacenter.

However, he is not convinced that alternative offerings will result in savings.

'There is a perception that switching to a rival product would be cheaper. But this hasn't been the case for businesses we've dealt with,' McCartney added.

A number of public sector customers have been reluctant to buy from Microsoft, but having tested the alternatives, they always choose Office, he said. 'The licence cost is only a small part of the overall cost for businesses,' he added.

Businesses looking to switch face other difficulties. With macros unable to be imported into rival productivity suites, conversion can be 'lengthy, expensive and risky', he said.

At this stage, the deal will only affect US customers. HP was unwilling to comment on its plans for the European market.