Microsoft is preparing a new version of Windows CE which will be launched in 2007.
Microsoft is trying to conquer the growing market for high-end cellphones while keeping alive opportunities for Windows CE, a decade-old technology that the company has long pushed for small electronic devices. CE is used in such disparate devices as gas station pumps and TV recorders.
Analysts say the market has a lot of potential, although Microsoft has hard work ahead.
"The company's historically about what? Operating systems. And operating systems are used by more and more classes of devices," said Joe Wilcox, an analyst with Jupiter Research.