MICROSOFT'S GATES UNVEILS NEW DIGITAL MEDIA PRODUCTS.

(Reuters) - Microsoft Corp. founder and chairman Bill Gates on Monday unveiled new initiatives designed to further the company's vision of turning homes into digital media networks linked to its software, video game machine and Internet services.

Gates said Microsoft's most-recent product releases, the Windows XP operating system and the Xbox game machine, had been selling well, against a backdrop of somewhat stronger than expected year-end sales for both computers and other consumer electronics than many had expected.

In his keynote address at the Consumer Electronics Show, Gates said Windows XP has sold more than 17 million copies since its Oct. 25 release, making it Microsoft's fastest-selling operating system to date.

"The opportunities for the consumer electronics, software and media industries have never been greater and this cycle of innovation has the potential to deliver valuable stimulus to the economy," Gates said in his prepared remarks.

Gates' various announcements come as major manufacturers, across software and hardware industries, vie to place their products at the center of the post-PC digital home. Microsoft's "eHome" strategy is just one of many being undertaken to link home PCs, TVs, stereos, and other entertainment products.

Microsoft met the high end of its estimates with the Xbox, shipping 1.5 million machines in the near six weeks between its launch and year-end, Gates said. "We've sold all that we can make," he told the audience at the trade show.

Microsoft and its rivals in the fast-growing video game market, Sony Corp. and Nintendo Co Ltd, have sparred over which platform has sold fastest.

Gates, who also serves as Microsoft's chief software architect, pointed to the average of the more than three games sold for every Xbox, as evidence the platform making an impact against its more-established rivals.

Gates' speech was, as usual, well attended; an hour before he spoke the general admission line for the auditorium was well over 100 people long, with many late-comers being turned away.

MIRA AND FREESTYLE

Gates also unveiled two new initiatives known by their internal code names: "Mira," a technology platform for wireless home computing, and "Freestyle," a hardware and software package for Windows XP-based PCs that promises to turn computers into something more like digital entertainment centers.

Mira, based on the newest version of Microsoft's portable operating system, would enable a range of wireless devices, such as PC monitors that detach and become portable touch-screen tablets, Gates said.

Gates said Microsoft was working with companies like Intel Corp toward a goal of bringing the first products based on the new software to market in time for the year-end holiday season in 2002.

Those consumer products, designed to be low maintenance, could allow users to roam the house reading e-mail and accessing other information stored on a PC, Gates said.

"What's ideal there is that the devices, using a form of Universal Plug-and-Play, would simply declare what their capabilities are, including whether they have storage," he said.

In addition to Intel, chipmaker National Semiconductor Corp, display makers ViewSonic Corp. and Wyse Technology Inc. have also teamed with Microsoft to develop Mira-based consumer products, Gates said.

The Freestyle software would allow users to use a TV-like remote control on their PCs for playing and swapping home video, pictures and music files.

The software would also enable users to record video on their PCs when the machines are equipped with TV tuner cards, a feature Microsoft said it is working with computer makers to include in upcoming product releases.

"These are things that will be out in about the 12-month period," Gates said.

Though Gates did not discuss portable gaming during his address, one Korean company, Impactra, was showing off a palmtop device before the speech that would play Windows Media video on a rotatable screen, and an Impactra executive said the company was working with Microsoft on incorporating cellular telephony and wireless, Xbox-related gaming into the unit.

LEVITY A PART OF SPEECH

Gates, not usually known for his sense of humor, managed to inject some comedy into his various product demonstrations.

One promotional video Gates played showed him and Microsoft chief executive Steve Ballmer play-fighting in Gates' office, with Gates dressed as Harry Potter and Ballmer as Luke Skywalker.

When confronted about their attire by "Entertainment Tonight" host Julie Moran, who was one of the hosts of the video, Ballmer ripped off a toupee he was wearing and stormed out of the office, while Gates confessed he "always dress(ed) this way."

But Gates was also confident about the prospects for Microsoft's new digital entertainment products, Harry Potter outfit or not.

"The pieces are coming together, the hardware's there, (and) we and others are building the software," he said.