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is taking aim at smartphone giants


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Research In Motion (RIM)





with a rumored overhaul of its cellphone strategy expected next week.

With PC sales evaporating, the software giant is eyeing the opportunities offered by mobile phones, according to

The Wall Street Journal

. Microsoft will launch a souped-up version of its Windows Mobile software and an "online bazaar" for distributing software to cellphones at next week's GSMA Mobile World Congress in Spain, says the


, citing sources familiar with the strategy.

Windows Mobile version 6.5 will apparently offer a much more sophisticated interface than earlier versions of the software, in a clear attempt by Microsoft to claw market share from the likes of Apple and RIM.

Apple's smartphone business has helped it

largely shrug off

the effects of the economic slowdown, and Palm's shares surged after the recent


of its Pre phone and the long-awaited webOS operating system.

"The rise of Apple and the stellar growth of RIM, along with the new devices announced by Palm have one thing in common, and that's tight integration of hardware and software," says Bonny Joy, senior analyst at technology research firm

Strategy Analytics


Microsoft, which offers its Windows Mobile software on handsets from



LG Electronics






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, is now looking to emulate its rivals' smartphone successes.

"Microsoft may be feeling at the moment that things have not been moving as they expected in this part of their business," says Joy. "They want to bring innovation."

The Redmond, Wash.-based company would not discuss its Windows Mobile plans when contacted by

although the firm is clearly focusing attention on the software platform. The company recently launched the beta version of its My Phone service, which synchronizes information on cell-phones to a Web site hosted by the software giant.

Strategy Analytics' Joy warns that the software giant may have a harder time than its rivals in integrating Windows Mobile with handset hardware.

"Microsoft doesn't have the luxury of specializing the OS for one specific piece of hardware - the challenge is that they have to tweak the OS for multiple different devices," Joy says.

Faced with stiff competition, Microsoft is already losing ground, according to technology analyst firm


, which says that Windows Mobile sales slipped 3% year over year in the third quarter of 2008.

Palm and RIM's operating systems enjoyed growth of 103% and 82%, respectively, during the same period, and Apple's MAC OS X surged almost 328%.

With users increasingly looking for new features on their smartphones, mobile operating systems are fast becoming something of an arms race between tech companies. Palm's recently-launched webOS operating system, for example, contains a number of Web technologies such as XHTML, JavaScript and CSS. The operating system also offers combined messaging, which links IMs and text messages, and can also update contact information across multiple applications, such as Microsoft Outlook,


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and Facebook.

Despite Microsoft's rumored plans for a software upgrade, Strategy Analytics' Joy feels that it could be another year before we see the company's mobile roadmap really unfold.

With the expected launch of Windows Mobile 7 in 2010, he says, Microsoft's strategy will become much clearer.

"I don't know what Windows Mobile 7 will look like, but everyone expects that to bring more differentiation in terms of the handset vendors' ability to customize it," explains Joy.

Microsoft's shares fell 30 cents, or 1.53%, to $19.36 Monday, as the Nasdaq dipped 0.02%.