Citing "people familiar with the situation", the Wall Street Journal reports that Microsoft is working with suppliers in Asia to test a new smart phone, but isn't yet sure whether the device will go into mass production.
The phone is rumoured to measure between 4 and 5 inches, which would put it in line with, er, almost every other smart phone.
Wading into the world of smart phones could equally rile manufacturers who've taken a gamble on Windows Phone 8, notably ailing firms Nokia and HTC. On the other hand, a Microsoft-branded mobile could be cheaper than the competition, which would be good for shoppers.
The Surface has been met with lukewarm reviews, with our review concluding that a relatively low-res screen, occasional sluggishness and a lack of apps spoil an otherwise tempting tablet.
Meanwhile, Microsoft has admitted that it "ran out of time" on building a notification centre for Windows Phone 8, the Verge reports. Android and iOS both offer swipe-down screens that collect alerts from texts, emails or apps, but Microsoft's platform is lacking.
"I promise we're thinking very very hard on that one," Microsoft's Thomas Fennel reportedly said, suggesting we'll see a notification centre cropping up with a future update.
Would you buy a Microsoft-made mobile? Or should Ballmer and buddies leave the hardware to more experienced companies? Tell me in the comments or on our Facebook wall.
Image credit: Jonas Daehnert on DeviantArt