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Cheap computers for the developing world are a cause celebre. And the cause is taking a big step forward today as Ncomputing announces that the Indian state of Andhra Pradesh will adopt Ncomputing’s $70 thin-client machines for its government-run schools.

The state has 1.8 million school children and has agreed to buy Ncomputing machines for more than 5,000 schools.

The Redwood City, Calif.-based company is making good headway with its machines, which are connected via Ethernet cables to a central desktop that functions like a server. With virtualization hardware, the server allows each client to run a full suite of Windows or Linux applications.

The thin clients themselves don’t have any CPU or main memory chips, so they’re much cheaper than standard PCs but offer much the same functionality. (The $70 cost does not include mouse, keyboard or monitor).

The Indian deal will include the purchase of 50,000 clients in the coming months, making it the biggest deal for NComputing in India. The total value of the agreement is $80 million, but that amount is shared by all of the hardware and software partners involved.

The government will save an estimated $20 million in costs compared to a traditional PC solution and cut its electricty costs by 90 percent, said Jim Jones, a board member of NComputing and partner at venture firm Scale Ventures, which led the company’s first-round funding.

The technology is based on the insight that today’s PCs are so powerful that the vast majority of applications only use a small fraction of the computer’s capacity. NComputing creates multiple virtual desktops on a single PC — effectively slicing up a machine’s computing power — so that many users can tap the unused capacity. Up to seven users can simultaneously share one Windows-based computer for the version of NComputing’s product line-up that Andhra Pradesh is adopting. Other versions of the NComputing product can connect up to 31 thin clients to a desktop. The thin clients use about a watt of power, compared to 85 watts for a typical computer. 

So far, the company has more than 20,000 customers in 90 countries, including 4,000 school districts in the U.S. NComputing has shipped more than a million units overall, with 180,000 in schools in Macedonia. That’s more than One Laptop Per Child, the cheap Linux-based laptop from the team headed by former MIT Media Lab creator Nicholas Negroponte. NComputing also competes with Intel’s Classmate PC and Asus’ eePC. On the thin-client side, the company competes with Wyse and Hewlett-Packard’s Neoware.

Ncomputing was founded in 2004 by a team in Germany and South Korea. Stephen Dukker, the former chief executive of PC maker eMachines (bought by Gateway), is the CEO. Besides the $8 million first round led by Scale Ventures, the company also raised $28 million in a second round led by Menlo Ventures earlier this year. It has 160 employees. Jones said that the company’s financial performance is strong and that it is not raising a new round of funding now. Here’s a link to a video description and a green computing white paper.

Silicon Valley company NComputing has quietly emerged as a significant force in distributing cheap computers, and has just raised $28 million in a second round of funding to help it expand.

The company has a valuation in the hundreds of millions of dollars, Stephen Dukker, Chairman & CEO of NComputing, told VentureBeat.

The company, which uses “virtualization” technology to hook up multiple devices to a centralized computer (see image below), sells the PC devices for $70 each. VMWare, another Silicon Valley company, had one of the hottest IPOs last year, because it offers virtualization software for corporate servers (lets multiple operating systems operate on a single server, thus reducing the number servers needed, and thereby lowers costs). NComputing takes the same concept to PCs, which is considered the next wave.

Forget the One Laptop Per Child (OLPC), another low-cost computer effort, which is seeing management and investor defections, and limited sales. OLPC was supposed to sell for $100, but it is selling for more. Because it sells directly to governments, and relies on those governments to provide support service. The total costs of each OLPC ends up being closer to $800, Dukker argues.

NComputing, based in Redwood City, Calif., says it has already blown past the OLPC in sales, having sold almost 600,000 of its devices already, including 180,000 of the devices to the entire student body of Macedonia. It says OLPC has sold fewer, but didn’t say what the total OLPC sales figure is.

The funding was led by Silicon Valley venture capital firm Menlo Ventures with participation from existing investors Scale Venture Partners and Korea’s Daehong Technew Corp.

The company, which launched its offering 18 months ago, aims to sell its computers to a billion people who so far haven’t been able to access computers.

The technology was developed in Germany, Poland and Russia over the past decade, said chief executive Dukker.

We asked Dukker, who is quite the salesman, about how his margins look (we had a half hour conversation and managed to get in about four or five questions edgewise). He said the marings are significant: NComputing lets distributors take a ten percent-plus cut, and end-dealers will take between 20 and 30 percent cut on top of that — all of this from the sale price of $70. The cost of the device cost “as little as $11″ to make, and so my back-of-the-envelope math suggests the company is making at least a 200 percent return. “You’re in the right neighborhood,” Dukker said in response.

Each device uses about a watt of power, versus 85 watts for a regular PC, he said. With a regular PC, only one to five percent of a PC processor’s power is used at any one time. So NComputing lets up to 30 users share a single PC. See illustration below.

NComputing’s PC devices are attached a central computer, and so the devices (”dongles”) can used through multiple upgrades of a single computer — thus are less likely to become obsolete, said Dukker.

In an earlier incarnation, Dukker ran Emachines, a low-cost ($400) computer company that emerged during the last Internet bubble. It sold two million systems in its first year, and was the “fastest growing company in the history of American business” said Dukker — but it had a difficult time making money because of the intense price competition in computers. It that was later acquired by Gateway.

NComputing serves consumers, and has few direct competitors. Companies like VMWare, Citrix and Mcirosoft sell to large companies, and typically charge much more money for a similar setup (on the order of $700 per user).

NComputing earlier raised $8 million from ScaleVC, formerly known as BA Venture Partners (see our earlier coverage).