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Ballmer told CNET News.com that over the next three to four years, the cost difference between building a tablet PC and a traditional notebook will evaporate, making the addition of tablet-related abilities into all portables a natural.

"There will be a zero cost (difference) for tablet," Ballmer said Sunday at a Microsoft party at the swank Aureole restaurant in the Mandalay Bay Casino here. The party took place just as Comdex Fall 2002 was kicking into gear.

Analysts say it’s too soon to tell whether Ballmer’s prediction will come true.

"This is rev one of tablet," said IDC analyst Roger Kay. "There are some brave souls out here breaking ground, but the real products have yet to be developed."

Ballmer also sees growth in Microsoft's mobility unit, which makes software for cell phones and handheld computers. Although Microsoft is losing money on the effort so far, Ballmer said the company stands to gain in short order.

Only three companies are developing operating systems for so-called smart phones--Microsoft, Nokia and Palm, Ballmer said. As a result, Microsoft is in a good position to grab a chunk of a market that is expected to account for 400 million units or more in a few years.

Microsoft has so far been slow to convince big-name cell phone makers to build smart phones, which double as handheld computers. But Ballmer said that Microsoft may be a more palatable alternative to handset makers than Nokia, a direct competitor.

Ballmer's view overlooks the work Sun Microsystems and its partners, including Nokia, Motorola, NTT DoCoMo and LG Telecom, have done adapting Sun's Java programming technology to cell phones. Java is built into numerous new cell phones on the market, though the available programs thus far generally are somewhat feeble.

At the same time, Microsoft could use more vim in its business of selling software for gadgets.

In its latest quarterly filing made last week with the Securities and Exchange Commission, Microsoft disclosed that for the three months that ended Sept. 30, its Windows CE unit had a net loss of $33 million on revenue of $17 million. By contrast, Microsoft's desktop and notebook Windows unit produced a staggering $1.7 billion in profit on revenue of $2.1 billion.

Ballmer also added some detail on the Smart Personal Object (SPOT) technology that Microsoft Chairman Bill Gates outlined in his keynote speech Sunday at Comdex. Ballmer said that devices such as alarm clocks and refrigerator magnets will run Microsoft's .Net Compact Framework and hinted that the devices might themselves use elements of Microsoft's Windows CE operating system. The devices will also use some kind of inexpensive wireless technology, with Gates promising to reveal more technical details at January's Consumer Electronics Show.

The .Net Compact Framework is a layer of software that allows programs written in Microsoft's C# programming language, and theoretically others as well, to run on different devices. The technology is very similar to Sun's Java software, which also shields programmers from worrying about differences between one company's cell phone and other, for instance.

The .Net Compact Framework and Java also both permit software to be downloaded over the Internet and for programs running on one computing device to easily invoke programs on other devices across network. Drawing on an example from Gates' keynote, a souped-up alarm clock with limited processing power could call upon a server to generate traffic and weather reports for the clock's display.

News.com's Michael Kanellos contributed to this report.