At the Microsoft Most Valued Professionals conference held in London this week, chief executive Steve Ballmer acknowledged the growing threat of Linux.

"We got beaten by Linux in the very high-end systems, but we have a whole development team despatched on that now," he is reported as saying in the Financial Times: "Linux isn't going to go away. Our job is to provide a better product in the marketplace."

He added that Microsoft needed to better explain how its products added value compared with free software.

Pitching the Most Valued Professionals initiative against the open source movement, Ballmer recognised that the appeal of Linux is not just low costs, but the sense of belonging to a development community.

"Linux is not about free software, it's about community," he said. "It's not like Novell: it isn't going to run out of money. It started off bankrupt, in a way."

But Ballmer's remarks incensed Novell. Company spokesman Bruce Lowry said: "This is typical Microsoft FUD [fear, uncertainty and doubt].

"Novell is not running out of cash; it has $600m plus in the bank and positive revenue growth. Ballmer's quotes don't reflect reality.

"Microsoft is obviously worried about the spectre of Linux, and we continue to provide an alternative operating system that doesn't lock users in."

While Ballmer acknowledged that Linux "couldn't be beaten on price", he claimed that Microsoft added value.

He explained that the Redmond giant will focus on the SME software market in a bid to "make hay" against its competitors while it has the time.