Surface Phone Rumors Resurface -- Is It Real?

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Investors have been talking about a Microsoft (Nasdaq: MSFT  ) Surface Phone since the dawn of time. Actually, it was more like this summer that the speculation began, following the software company's announcement of its Surface tablet that went on sale last week.

Steve Ballmer has done his part in feeding the insatiable rumor mill. In September, he told The Seattle Times that Microsoft is transforming into a "devices-and-services company," a theme he hammered home in his annual letter to shareholders. Just last week, Ballmer told the BBC that Microsoft would "obviously" be making more hardware in certain key areas where a new standard is needed.

The Wall Street Journal is now reporting that Mr. Softy has already begun testing a first-party smartphone design with its Asian component suppliers. These same anonymous sources say that testing has begun but the design isn't finalized and may or may not proceed into mass production. Such a move would further Microsoft's goals to replicate the success of longtime rival Apple (Nasdaq: AAPL  ) .

One feature that's up for debate is what screen size the Surface Phone should sport, with Microsoft currently testing displays ranging from 4 inches to 5 inches. This has become a contentious debate within the smartphone industry, as Apple's confident use of a 4-inch display while calling larger displays awkward doesn't seem to acknowledge the growing popularity of the "phablet" category of gadgets that includes devices up to 5 inches.

Samsung's popular Galaxy S3 carries a 4.8-inch display. Microsoft's biggest Windows Phone partner, Nokia (NYSE: NOK  ) , is putting a 4.5-inch display on its flagship Lumia 920. HTC's Windows Phone 8X uses a 4.3-inch display, while Samsung's ATIV S carries a 4.8-inch screen like the GS3. Regardless of what screen size Microsoft uses, the Surface Phone will be competing with all of its key hardware partners.

The WSJ is a pretty reputable source when it comes to rumblings of this nature, and its anonymous sources boast fairly high accuracy relative to some of the more dubious outlets. But just because Microsoft is testing a phone doesn't mean it'll be the real deal.

It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

Evan Niu, CFA, owns shares of Apple. The Motley Fool owns shares of Apple and Microsoft. Motley Fool newsletter services recommend Apple and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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