Microsoft has unveiled the latest version of its Tablet PC operating system, Windows XP Tablet PC Edition 2004.

The release marks the Tablet PC's first birthday, a year which has seen disappointing sales of the new design.

The new operating system is due to be available by mid-2004 as a free upgrade for existing customers, and will come preinstalled on new Tablet PC hardware systems.

The software giant said key improvements in Windows XP Tablet PC Edition 2004 include enhanced 'ink to text', designed to make the pen a 'mainstream input device' throughout all Windows applications.

Integration in Microsoft Office 2003 and Office OneNote 2003 has been improved to allow users to annotate anywhere in Microsoft Office Word, Excel or PowerPoint 2003, and to send handwritten email in Outlook 2003.

Microsoft chairman and chief software architect, Bill Gates, said that Tablet PCs are seeing increasing support. Some 40 companies are currently designing and manufacturing Tablet PCs worldwide, and more than 120 are developing software to takes advantage of the pen capabilities.

"We're also seeing great early purchases and deployments of Tablet PCs in several major vertical markets, including healthcare, financial services and education," he said.