Intel, the world’s largest chipmaker, is planning to mass market a $199 (£99.70) notebook computer.

It has teamed up with Asustek Computer, the Taiwanese circuitboard maker, as it competes with the One Laptop Per Child Foundation (OLPC) to gain a foothold in a potentially huge market.

Last month the OLPC foundation, set up by Nicholas Negroponte, a scientist at the Massachusetts Institute of Technology, near Boston, announced plans to produce an initial batch of three million $176 laptops for sale from October in the developing world.

Roger Kay, the president of Endpoint Technologies, the consultancy, said: “Computer companies are lining up to get into the developing world because they have sold their first billion PCs and they are now looking to the next billion.

“Initially, they will make very low margins, but manufacturing costs are going down all the time, while many of the countries are getting wealthier, and so the manufacturers are looking to build their brand loyalty now in preparation.”

Mr Kay added that, although the average household income of the second billion potential PC owners is only $5,000, many parents are prepared to spend a disproportionate amount on a computer in the belief that it will improve their children’s prospects.

Intel said that it planned several models, to be marketed under the Asustek brand, with 7in to 10in screens and a “lower-end” microprocessor.

The most expensive is expected to sell for about $500.

The computers would compete with the green-and-white plastic, child-friendly XO laptops made by the OLPC, which numbers Google, eBay and News Corporation, parent company of The Times, among its backers.

The XO runs on the Linux operating system and uses a microprocessor made by Advanced Micro Devices (AMD).

However, Microsoft is also aiming to tap the market and is developing a $3 Windows package that is being tested on the XO machines.

Although Intel has distributed laptops to children in developing countries for years, this would mark the first time that it has mass-produced them for that market.

The company’s recent Classmates initiative aims to ship just 1,230 low-cost PCs to governments in Asia this year.

Sean Maloney, Intel’s head of sales and marketing, said: “The world is a big place and there’s room for lots of these things.”

Intel plans to start shipping the computer next month and aims to sell 200,000 by the end of the year.

Separately, Intel said that it was teaming up with STMicroelectronics to create a $3 billion company that will make flash memory chips.

It is striving to slim down its business and boost margins in the face of competition from AMD.

The group’s flash memory unit has posted losses recently.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive