Update: No smartphone from Microsoft

Microsoft has no plans to make a phone, according to Scott Rockfeld, the director of Windows Mobile. "Our core focus has been and will continue to be providing software plus services and working with our partners to deliver great phones," he said.

"Multiple industry sources are telling us that Microsoft is planning to launch a smartphone," wrote Rob Sandserson and Mark McKechnie of Broadpoint AmTech (Greenwich, Conn.) in a research report.

One analyst said the speculation could have been spawned by Microsoft's involvement with prototype designs.

Microsoft is "working more aggressively with ODMs and OEMs to create more competitive third party phones, and that is what may be driving this speculation," said Rob Enderle of the Enderle Group. "Microsoft Mobile in particular knows [having its own phone] would kill their partnership model," he said.

Microsoft did acquire last year Danger, the Silicon Valley designer of the Sidekick smartphone used by T-Mobile. "We expect a Windows Mobile 'lite' allowing lower handset costs" designed with help from the Danger team, said Rick Doherty, principal of market watcher Envisioneering (Seaford, NY).

Many companies are expected to jump into the smart phone market at the Mobile World Congress in Barcelona this month including Taiwan ODM giants AsusTek and Acer. Several of the handsets will be based on Google's Android software.

GPS maker Garmin said it has dropped plans for its own smartphone but will work with AsusTek. Dell is also said to be planning a smartphone, and Toshiba launched an iPhone-like device this week using the Qualcomm Snapdragon chip.

Microsoft has been increasing its presence in consumer hardware, expanding from mice and keyboards to become one of the three big videogame console makers to date. But the company would take on huge supply chain logistics issues if it did jump into the smartphone market where it would face heated competition from established players such as Apple, HTC, Nokia and Research in Motion as well as newcomers such as the Google Android partners.

"We do not see [a Microsoft smartphone] as landscape changing, much like their Zune launch," said the Broadpoint analysts. "The Zune effort certainly did not change the iPod/ iTunes trajectory, but may have taken some share from weaker players including those using Windows DRM," they added.

However, the analysts noted a Microsoft move into hardware would parallel Nokia's recent purchase of Symbian and Apple's do-it-yourself approach. Such vertically integrated styles are "proving to be the preferred model," they said.

Another analyst from the company said he believes Microsoft and other handset makers have designed the Nvidia Tegra, an ARM-based processor launched in June, into new smartphones.

"We have nothing to announce at this time," said Rockfeld of Microsoft. "We continue to collaborate with Nvidia on the delivery of innovative solutions that move the smartphone industry and the consumer experience forward. While our platform is ready to support, it is ultimately up to our hardware partners to decide what goes into their phones."