Microsoft is applying more manpower to influence computer design as the market for PCs stays in a slump. As part of a reorganization of its Windows client business on March 5, Microsoft has pulled hundreds of employees from its Windows development, research, and business-productivity divisions to work in a new Windows Extended Platforms Division that will prototype PCs of the future.

The Extended Platforms team, led by VP Rick Thompson, will include Microsoft's Tablet PC, Smart Personal Objects Technology, and Windows XP Media Center products. Microsoft's Spot initiative will try to tap an emerging market for computers embedded into everyday objects, such as wristwatches. Media Center PCs let home users play music and watch movies via a special user interface driven by a remote control.

The reorganization comes as PC sales remain historically low and the computer industry searches for design breakthroughs and killer apps to kick off buying. That's as much an issue for Microsoft as for PC makers.

"In some ways, it seems that Microsoft is the one that's pushing new form factors, rather than the hardware vendors," says Jonathan Geurkink, an analyst at Ragen MacKenzie, a subsidiary of Wells Fargo Investments LLC.

Market-research firm Gartner expects worldwide PC shipments to increase 7.9% this year, after an increase of just 1.5% last year.

A Microsoft spokesman says the Extended Platforms team--one of five under a newly organized Windows client division--will work on "new hardware scenarios, design, and concepts." VP Thomson previously worked on Microsoft's Xbox game console. He reports to Will Poole, the senior VP in charge of Microsoft's Windows client business.

Intel is also working on prototype PCs it hopes will increase demand. At its Intel Developer Forum conference in San Jose, Calif., last month, the chipmaker said it's developing "concept platforms" of PC components designed for better data throughput, graphics performance, and security, as well as improved speech recognition and Internet voice conferencing. Some products are scheduled to be available next year.