SEATTLE (Reuters) - Microsoft Corp released the latest version of its Windows operating system for powerful servers on Wednesday, thrusting itself into the red-hot market for virtualization technology that allows one computer to act like many machines.

Windows Server 2008 marks Microsoft's first major challenge against VMware Inc, the leader in virtualization, by building the technology into its core operating system.

For the time being, Microsoft will ship Windows Server 2008 with a test version of its "Hyper-V" technology, which adds an extra layer of software that sits between the operating system and hardware, but it expects to add the full feature to the software within six months.

Windows accounts for about two-thirds of shipments of computer-server operating systems, but Microsoft is considered a laggard in virtualization to allow servers to run Linux or Unix operating systems alongside its own software.

Virtualization is one of the fastest-growing segments of the software industry because it disrupts the traditional business model that marries one machine to one piece of software like an operating system.

Before the Windows Server launch, VMware announced on Tuesday an agreement to integrate its virtualization software into computer servers from Dell Inc, Hewlett-Packard Co and International Business Machines Corp.

Along with Windows Server 2008, Microsoft will also take the wraps off the upgrade to its SQL Server database software, due out in the third quarter, after delays pushed back its launch. The company will also highlight the latest version of its developer software, Visual Studio 2008.

The upgrades are part of a new product cycle at Microsoft's server and tools division, which is the company's third-largest business, behind its mainstay Windows and Office units. The division accounted for more than 20 percent of overall profit and revenue.

Windows Server 2008, the successor to Windows Server 2003, will also lead a broad shift to a more advanced 64-bit computer architecture. Microsoft will offer the new operating system in both 32-bit and 64-bit versions.

A 64-bit operating system improves the performance of certain applications because it can address significantly more memory than a 32-bit version.

(Reporting by Daisuke Wakabayashi; Editing by Lisa Von Ahn)

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