UPDATE 2-Microsoft said to plan new Windows for tablets

* Microsoft to work with ARM on mobile devices -reports

* Unclear when Microsoft/ARM operating system might come

* Microsoft says 1.5 mln Phone 7s sold in 6 weeks

* Microsoft says Phone 7 sales met realistic expectations

* Concedes intense competition; Apple, Google dominate (Updates with reports Microsoft plans new OS with ARM processors)

LOS ANGELES, Dec 21 (Reuters) - Microsoft Corp (MSFT.O) is working on a version of its core Windows operating system for devices such as tablets, according to media reports on Tuesday, and the company said its Windows Phone 7 software is making headway in the booming smartphone market.

Microsoft plans to unveil a version of its operating software that runs for the first time on processors designed by UK-based ARM Holdings PLC (ARM.L), the Wall Street Journal and Bloomberg reported. ARM's processors dominate the tablet and handheld device market.

Microsoft intends to announce a version of its operating system to run on ARM chip architecture, which competes with the "x86" designs favored by Intel (INTC.O), the Wall Street Journal cited people familiar with the plans as saying.

It was unclear when such an operating system might come to market, but the U.S. software maker could claim lost ground in tablets and other battery-powered mobile devices by forging a new partnership with ARM.

Microsoft and ARM declined to comment.

Microsoft said on Tuesday that more than 1.5 million cellphones carrying Windows Phone 7 operating software have sold in the first six weeks of launch, meeting what the company called "realistic" expectations.

Windows Phone 7 may be Microsoft's last chance to establish a major presence in a hot cellphone market now dominated by Apple Inc (AAPL.O) and Google Inc (GOOG.O), analysts say.

The sales numbers were disclosed for the first time by Achim Berg, vice president of business and marketing for Windows phones, in an internally conducted interview posted on Microsoft's website.

"It's a decent number. The mobile market is going to be a battle for Microsoft," said Colin Gillis, an analyst with BGC Partners who has a "buy" rating on Microsoft.

Microsoft's disappearance from the phone market and its delayed response to tablet devices like Apple's iPad has been seen as a drag on shares this year. Its shares closed up 26 cents on Tuesday at $28.07.