After bringing its first home-grown tablet to market, with the release of Windows 8, Microsoft is reportedly testing the waters in the smartphone space.
The Wall Street Journal (WSJ) reports "people familiar with the situation" have said the software giant is working with component suppliers in Asia to test its own smartphone design. Sources say Microsoft is not yet sure if it will go ahead with mass production of the handset.
While Microsoft has declined to comment on the rumours of a smartphone, last week CEO Steve Ballmer indicated the company would "obviously" be working on more hardware products.
Speaking to the BBC, Ballmer said: "Is it fair to say we're going to do more hardware? Obviously, we are... Where we see important opportunities to set a new standard, yeah we'll dive in."
The Surface tablet went on sale in select markets last week, along with many other tablet offerings from Microsoft's OEM partners. When the Surface tablet was first unveiled, there was some concern among Microsoft's partners that the company would be seeking tighter control over the hardware for Windows 8 products. At the time, however, Ballmer sought to reassure OEMs that the new tablet is just a "design point".
"It will have a distinct place in what's a broad Windows ecosystem. And the importance of the thousands of partners that we have that design and produce Windows computers will not diminish," said Ballmer.
In an interview earlier this year, with CRN at Microsoft's Worldwide Partner Conference, Ballmer acknowledged that in the past, Microsoft and its partners had "ceded some of the boundary between hardware and software" to Apple.
Ballmer added that Microsoft will not let any piece of the market go uncontested to Apple. "Not the consumer cloud. Not hardware software innovation. We are not leaving any of that to Apple by itself. Not going to happen. Not on our watch."
Apart from the Xbox Kinect, the Surface Tablet has been Microsoft's first foray into integrating its own hardware and software - a strategy that has been a key component of Apple's success.
'Propel the vision'
It has been noted by Forrester that since the entry of smartphones and tablets into the market, Microsoft's share of the personal computing device market has shrunk from about 95% to 30%. As a result, it is essential for Microsoft to carve a space for itself in the new landscape.
According to IDC, in the July-September quarter, devices running Microsoft's Windows Phone platform accounted for just 4% of global shipments.
When pushed on the subject of a possible Microsoft smartphone, Ballmer told the WSJ: "We're quite happy this holiday [season] going to market hard with Nokia, Samsung and HTC."
In a recent conference call with analysts, Nokia CEO Stephen Elop was unfazed by the prospect of a competing smartphone from Microsoft. He is quoted as saying: "It would be a stimulant to the ecosystem."
Not confirming or denying anything, Ballmer has also said: "We have committed ourselves on a path where we will do whatever is required from both a hardware and a software innovation perspective and the cloud innovation perspective in order to propel the vision that we have."
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