Microsoft is preparing to unveil a handheld multimedia device designed to take on Apple's iPod and the Sony PSP, according to reports.
Microsoft operating systems already run on mobile devices
Called Origami, it is thought to boast a touch screen, wireless web access, and to play music, videos and games.
A slick advertisement for the embryonic product and an official teaser site are available online.
Microsoft confirmed it had been working on Origami, but insisted no date had been set for an official launch.
Speculation about Origami grew as Apple launched the latest innovation in its iPod range.
The California company launched iPod Hi-Fi, a speaker system designed to put the portable music players in living rooms as well as coat pockets.
It also unveiled the latest version of its Mac Mini computer, boasting an Intel processor and the ability to stream media content from other computers on a local network.
According to the Origami advertisement, posted online at video-sharing website youtube.com, Microsoft sees the Origami device as an all-purpose multimedia lifestyle tool.
The device's young, attractive users are shown using the device to stream music wirelessly at home, check the web for directions when far from home, or to send pictures snapped on mobile phones or digital cameras.
Microsoft wants Windows-based media centres in the home
Microsoft said the advertisement was created a year ago, and may not reflect the eventual size and shape of any Origami device.
There was no indication whether the device would carry the Microsoft brand name or if Microsoft would simply provide the operating system.
The Origami project is a joint effort with unspecified partners, Microsoft said.
However, bloggers have linked to a speech made by Bill Gates at the 2005 Windows Hardware Engineering Conference in which he talked about an "ultra mobile" device that would cost less than $800 and would run all day on one battery charge. Mr Gates put a 2007 date on the launch of this product.
Other Microsoft watchers have pointed to an agreement with chip firm Transmeta which makes low-power processors for handheld devices.
The company, which is best known as a software developer, has launched branded hardware in the past, including tablet PCs and home media centres.
Apple's new iPod Hi-Fi aims to put the iPod in the living room
However, Microsoft lags behind Apple and Sony in the potentially lucrative hand-held market.
Last year, Apple added video playback to the iPod, and speculation persists that new versions of the iPod currently in development could incorporate a larger screen and touch-screen facilities.
The Sony PlayStation Portable (PSP), also launched in 2005, offers wireless internet access, games and media handling capabilities.