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Microsoft has informed some of its partners that it has had to delay Windows Mobile 7, a much anticipated update to its cell phone operating system.

Although Microsoft has not publicly said when to expect Windows Mobile 7, partners who had expected to have a final release in their hands by early next year have been told now that it won't be ready until the second half of next year, sources told CNET News.

The delay is a significant blow for the software maker, which has been counting on the next version of Windows Mobile to enable devices that better rival Apple's iPhone. Among the features widely expected to be part of the release is advanced gesture recognition, perhaps along the lines of the iPhone, but possibly also using the camera as a means for reading gestures. Microsoft's Tellme unit, which focuses on speech input, has also been working on Windows Mobile 7 features.

Windows Mobile 7 is expected to be a dramatic improvement over 6.1, shown here, but when will it arrive?

(Credit: Microsoft)

The delay also comes amid stepped-up competition. Google is preparing Tuesday to launch the first phone running its Android operating system, while Apple has its updated iPhone 3G, and new models are also debuting from BlackBerry maker Research In Motion.

Microsoft, for its part, declined to comment on its plans. In an interview, group product manager Scott Rockfeld noted that CEO Steve Ballmer and mobile unit head Andy Lees did meet with 17 of the company's largest cell phone maker and carrier partners.

"They all expressed their excitement of what we are doing in the short term and the long term," Rockfeld said.

Microsoft is not expected to have a major update to its core operating system ahead of Windows Mobile 7. However, other improvements are expected to debut sooner, most notably an improved browser that brings the rendering engine of Internet Explorer 6 onto Windows Mobile. That update, still expected this year, should pave the way for Windows Mobile phones to display rich Web pages, including those that are home to Flash content and Ajax applications.

In addition, a number of carriers and handset makers have been working with Microsoft to add new touch interfaces and other features, separate from Microsoft's operating system updates. The T-Mobile Shadow was one of the first devices to benefit from such work, while more recent products from HTC also have their own custom interfaces above and beyond those included in the most recent version of Windows Mobile.

"Customers don't have to sit back and wait," Rockfeld said. "There's tons of stuff coming from us and our partners."

Rockfeld also tried to make the case that Microsoft's business model is friendlier to hardware makers and cell phone carriers than those of rivals, including Google.

"The thing that they are trying to do is they are trying to own the services," Rockfeld said, saying that is a move that has plenty of carriers worried. "They don't want to sit there and just become a dumb pipe."

Microsoft, he said, is willing to work with carriers to power their own services. "We're happy sharing the limelight," he said.

As for Windows Mobile 7, Microsoft has said very little publicly. Ballmer did make reference to it in a speech to enthusiasts in April.

During the speech, he talked about how Windows Mobile would outsell Apple and RIM during 2008. He then added: "And I think that certainly this should be a good year for us for sales, but the work we're doing on Windows Mobile 7, which is the next major release of Windows Mobile, not just in the Windows Mobile team, but across Windows Mobile, in Silverlight, the development platform, the e-mail, the back-end, I think you'll continue to see that as an area of major excitement and innovation for the company as we move forward."