The long-delayed Windows upgrade, code-named Longhorn and now expected in December 2006, has been touted as the most significant update to the ubiquitous operating system since Windows 95 launched in 1995.

On Monday, Microsoft Chairman Bill Gates demonstrated Longhorn's new graphics, which include better ways to visualize data, such as seeing through windows that are stacked atop each other, more natural file organization and faster searching.

He also promised better performance and reliability.

And though he spent only a few minutes on security in his speech, Gates said it was the most important improvement and had received the most attention by developers.

"If you had to take one area where we put the most investment in, the security area would be the head of that list by a significant amount," he told the audience at the Windows Hardware Engineering Conference.

Longhorn will boost security by placing cryptographic keys in special silicon chips that would be built into PCs. Currently, such encryption locks are stored as data on a hard drive. It is, however, much more difficult to crack a chip.

The security chip in computers running Longhorn would render sensitive files inaccessible if someone tried to boot the machine from a portable hard drive or floppy disk.

The security initiative - once code-named Palladium but later christened the Next Generation Secure Computing Base, or NGSCB - was announced in 2002 and was quickly attacked by privacy advocates, Microsoft critics and others as a mechanism by which commercial interests might wrest control of PCs from their owners.

Some claimed it would enable strict copyright protection schemes for music, movies and software. It also could restrict the tinkering that has driven computer industry innovation over the years, they said.

Secure startup isn't expected to be as controversial as chip-based rights management. Microsoft has not said, however, how else Longhorn might interact with the chip, though security features are expected that would make it more difficult for online criminals to break into PCs.

Neil Charney, director of product management in Microsoft's Windows group, said the secure startup feature is most likely to be used by business computers, especially in laptops that store sensitive data that could come back to haunt companies after a theft.

A number of companies, including Microsoft, are working together to beef up security using a combination of hardware and software. NGSCB is just one approach, though it's likely to have the most impact given Microsoft's dominance.

Some PC vendors, including IBM Corp. and Hewlett-Packard Co., have been offering PCs with security chips for years. On Monday, HP announced it will support Longhorn's implementation on some of its business computers and workstations.

The bulk of Gates' speech covered Longhorn's visual and organizational features - which Apple CEO Steve Jobs described last week as "shamelessly" copying his company's Mac OS X operating system.

"They can't even copy fast," Jobs said at his company's shareholder meeting.

Indeed, many of the features that Gates demonstrated Monday have been a part of the Mac OS since it was released in March 2001.

And some of Longhorn's organizational tools, such as faster searching and virtual folders that populate with documents based on the information they contain, are expected to be part of the version of Mac OS X that goes on sale Friday.

"Microsoft will have a year and a half to add some bells and whistles to allow it to claim some differentiation," said Dwight Davis, an analyst at the research firm Summit Strategies.

Charney said improved searching will work even without an updated file system, which is the method the computer uses to organize and store information. WinFS, the updated file system that was originally supposed to ship with Longhorn, is now slated to be available in a preview release in late 2006.

Microsoft shares closed at $24.99, up a penny, in Monday trading on the Nasdaq Stock Market. The stock has traded in a 52-week range of $23.82 to $30.20.