Eric Schmidt, the chief executive of Google, has signalled that the internet search leader intends to strengthen its ties with Apple and intensify its assault on Microsoft’s Office software.

Mr Schmidt, who joined the board of Apple last year, was asked at the Morgan Stanley technology conference in San Francisco about rumours that Google was looking to develop a handheld gadget that could compete with Apple’s iPhone. He said: “Google and Apple are doing more and more things together . We have similar goals and similar competitors.”

Significantly, Mr Schmidt was absent from January’s Consumer Electronics Show in Las Vegas, opting instead to take the stage at Apple’s parallel event in San Francisco, where the iPhone was unveiled.

Google is under pressure to diversify from its core internet advertising business, and Mr Schmidt said that web-based software services would boost sales going forward. Last month the company launched a package of business software services, including a word-processor, spreadsheet and e-mail account, at $50 a year per user.

Mr Schmidt discounted talk that Google could use its vast reserves to fund acquisitions. At the end of last year, Google had amassed more than $11 billion (£5.7 billion) in cash and marketable securities on its balance sheet, a 40 per cent increase on a year earlier.

Yahoo!, the second-placed player in the online advertising market, has been mooted as a possible target. However, Mr Schmidt said that the market is not yet ready for consolidation.

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