The first laptops powered by Google Inc's Chrome operating system will reach store shelves months later than expected and miss the holiday shopping season as the Internet company fixes software issues.

The Web-centric computers, intended as an incursion into territory dominated for years by Microsoft Corp and Apple Inc, will ship around the middle of 2011.

Google, the world's No. 1 Internet search engine, is holding off launching the Chrome-based PCs until it can fix some software bugs and make sure that the computers are compatible with other devices such as digital cameras, Google product manager Sundar Pichai said on Tuesday.

Amazing progress, but we aren't fully done yet, Pichai told reporters at a press briefing in San Francisco.

If I'm shooting for one holiday season, I wouldn't be working on it. This is a journey, Pichai told Reuters in an interview after the briefing.

Once they arrive, the computers will embody Google's strongest foray into consumer and business computing.

Prices of the laptops have not been determined, executives said when asked if the Web-centered notebook computers might cost less than traditional PCs which brim with storage and processing hardware.

You will see a variety of notebook price units, Pichai told Reuters.

Samsung Electronics and Acer Inc will make the first laptops. Intel Corp will make the processors in the first batch.

The first laptops will come with 100 megabytes of free wireless data transfers per month for two years, courtesy of Verizon Wireless. According to Verizon, streaming video for just two minutes every day amounts to 260 megabytes of data downloads in a month.

The laptops promote Web-centric computing, in which people use online applications instead of software loaded onto PCs.

As part of that effort, the company on Tuesday opened an Internet store selling about 500 games, productivity tools and other software applications for Chrome, carving out a bigger role in Internet media and entertainment.

BLACK IS BACK

The company did not explain how the Chrome operating system would contribute to profits. With Google's Android operating system for smartphones and tablets, Google offers the platform for free, but earns revenue from mobile advertising, which recently said is generating revenue at a $1 billion annual run rate.

As with Android mobile phones, the Chrome software is expected to spur people to use the Internet more often and search for more things. That could boost Google's Internet ads business.

It's in the best interest of Google to continue to provide enhanced user experiences where you're going to be searching the crap out of everything, said Gleacher & Co analyst Yun Kim.

And with consumers increasingly accessing the Web from newfangled mobile devices, like smartphones and tablets, Google's efforts to own the PC operating system are an attempt to ensure that its search service remains front-and-center, Kim said.

While Chrome-based PCs won't be available in retail stores until next year, Google has begun a pilot program distributing prototypes to schools, businesses, developers and other users with the intent of collecting feedback.

The all-black CR 48 prototypes come with 12.1-inch screens, 3G connectivity and webcams, but do not have any logos or branding.

Google demonstrated how the notebooks can be turned back on from standby mode almost instantaneously. Pichai also told Reuters that that notebooks which are turned off completely can be powered back up in ten seconds.

Success is tens of millions of users using these products. That's what we work toward, Pichai said.

The market for PC operating systems is dominated by Microsoft, whose Windows software is used on more than 90 percent of the world's PCs.

Microsoft declined on Tuesday to comment on the Chrome developments.

Tim Bajarin, president of high-tech consulting and market research firm Creative Strategies, said the Chrome notebooks would initially appeal to tech-savvy so-called early adopters.

I don't believe this is an immediate threat to Microsoft, at least in the next two years, Bajarin said.

Bajarin also noted that PC manufacturers typically pay $45 to $75 per PC to license the Windows operating system from Microsoft, a cost that Chrome-based PCs would not have.

While he said it was too early to guess the prices of Chrome notebooks, he said he believed they would be priced under $500.

Google will earn 5 percent on every application sold through its online store, enough to cover costs, while most of the revenue goes to its developers.

Apple, maker of iPhone and iPad, said in October that it would open an applications store for its Macintosh computers as it tries to replicate the success of iPhone apps. That store is expected to go live early next year.

The Chrome Internet browser, on which the operating system is based, has 120 million users, Google executives said. In May, it had 70 million.

Google shares closed up 1.5 percent at $587.14 on Nasdaq.

(Reporting by Alexei Oreskovic and Edwin Chan; Editing by Robert MacMillan, Bernard Orr and Richard Chang)

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