Microsoft said that it was "not unreasonable" to speculate that the company could introduce a smartphone based on its Zune digital music player, in direct competition with Apple's iPhone.

Since Microsoft first announced its Zune digital music player, the idea of a converged Zune/smartphone product has been the topic of speculation. Initially the company responded that a Zune phone was definitely in the works, but then earlier this year CEO Steve Ballmer said that a Zune phone was not on the company's planning table, but that it could add more music and gaming functions to its Windows Mobile platform.

Currently Microsoft's mobile phone focus has been primarily on providing its platform, Window's Mobile, to handset manufacturers, but the company said that, going forward, integrating device and software production might make sense.