Microsoft Chairman Bill Gates took the wraps off its next-generation operating system known as Windows Vista on Wednesday, displaying features aimed at positioning the software giant as the entertainment hub for a future of digitally connected homes.

Gates also downplayed the threat from Web search leader Google, saying in an interview that Microsoft faced a host of rivals ranging from IBM to Apple to Sony to Nokia in its bid to control the next generation of software.

The much anticipated upgrade to Microsoft's flagship operating system displayed a new interface with 3-D scrolling between different windows, which can appear translucent to allow users to see the information beneath.

During Gates' keynote speech to a packed audience at the Consumer Electronics Show, Microsoft plugged a digital cable into a PC to watch and record high-definition video and filtered downloaded music by the dates of albums.

As broadband and high-definition content become more ubiquitous, Gates said the unifying factor will be software.

"The software is where the magic is. If you're going to have all this power be simple enough, appealing enough and cool enough, it's going to be because the software is right," Gates said in an interview with Reuters in advance of his address at the largest U.S. electronics show of the year.

Some of the elements of Vista featured in Gates' speech took aim at Microsoft's various competitors, such as Google Inc. and Apple Computer Inc. .

Microsoft unveiled a search function within Vista that cuts across the content within the PC and its network, aimed at not conceding search on the desktop or the Internet to Google.

"People tend to get overfocused on one of our competitors. We've always seen that," said Gates.

"The biggest company in the computer industry by far is IBM . They have the four times the employees that I have, way more revenues than I have. IBM has always been our biggest competitor. The press just doesn't like to write about IBM."

VISTA ON DECK

Vista, targeted for shipment in the second half of 2006, will include the next version of Windows Media Center that is fully compatible with high definition programming, and Internet Explorer that promises improved security protection.

The five-year gap between the expected launch of Vista and Microsoft's current operating system Windows XP is the longest-ever gap between major launches of its core Windows product, the company's cash cow that accounts for more than a quarter of its $40 billion in annual revenue.

Gates, Microsoft's co-founder and chief software architect, emphasized the consumer elements of Vista rather than the traditional focus on business clients.

Microsoft said it will also work together with DIRECTV to enable the transfer of digital content among Windows PCs, DIRECTV devices and the Xbox 360 to allow customers to watch movies and programs they get on their TV and play them on a number of different devices.

The company also offered a demonstration of Flight Simulator 10 to display the better graphics capability within Vista for video games.