Microsoft Corp is working on a version of its core Windows operating system for devices such as tablets, according to media reports on Tuesday, and the company said its Windows Phone 7 software is making headway in the booming smartphone market.

Microsoft plans to unveil a version of its operating software that runs for the first time on processors designed by UK-based ARM Holdings PLC, the Wall Street Journal and Bloomberg reported. ARM's processors dominate the tablet and handheld device market.

Microsoft intends to announce a version of its operating system to run on ARM chip architecture, which competes with the x86 designs favored by Intel, the Wall Street Journal cited people familiar with the plans as saying.

It was unclear when such an operating system might come to market, but the U.S. software maker could claim lost ground in tablets and other battery-powered mobile devices by forging a new partnership with ARM.

Microsoft and ARM declined to comment.

Microsoft said on Tuesday that more than 1.5 million cellphones carrying Windows Phone 7 operating software have sold in the first six weeks of launch, meeting what the company called realistic expectations.

Windows Phone 7 may be Microsoft's last chance to establish a major presence in a hot cellphone market now dominated by Apple Inc and Google Inc, analysts say.

The sales numbers were disclosed for the first time by Achim Berg, vice president of business and marketing for Windows phones, in an internally conducted interview posted on Microsoft's website.

It's a decent number. The mobile market is going to be a battle for Microsoft, said Colin Gillis, an analyst with BGC Partners who has a buy rating on Microsoft.

Microsoft's disappearance from the phone market and its delayed response to tablet devices like Apple's iPad has been seen as a drag on shares this year. Its shares closed up 26 cents on Tuesday at $28.07.

DECENT SHOWING

But Gillis noted that the shipment of 1.5 million phones was sales into the distribution channel, rather than directly into consumers' hands, which tempers the announcement.

Taiwan's HTC, Dell Inc, Samsung Electronics and LG Electronics are among the vendors who have launched or plan to begin selling Phone 7-based devices.

The industry is closely watching the early days of what could be a longer-term driver of growth. Gillis forecasts about 25 million Phone 7 sales in 2011. In contrast, analysts expect Apple to sell more than 60 million iPhones next year.

We all know that the competition is extreme in this industry, and we have to compete on multiple fronts, Berg said in the interview.

We are on a path to begin releasing the first of several updates in the next couple of months, and several more mobile operators around the world will introduce Windows Phone 7 on their network in 2011.

Gillis noted that Microsoft is spending $500 million to market the Windows 7 smartphone, and suggested the company could see market gains by using some of that cash to subsidize the devices so consumers get them for free.

(Reporting by Alex Dobuzinskis; Editing by Gary Hill)

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