Microsoft is not going to introduce a Microsoft-branded phone at the Mobile World Congress show in Barcelona later this month. Not a Microsoft-branded Zune phone. Not any kind of Microsoft-branded phone. Period.
So why -- in spite of continued and repeated denials by Microsoft -- do reports continue to surface that Microsoft is going to deliver a smartphone? According to people familiar with the company's mobile plans with whom I've spoken, Microsoft is developing some smartphone reference implementations. These implementations are taking the form of multiple smartphone chassis (at least one of which is powered by Nvidia processors).
(A year ago I speculated that Microsoft officials were carefully choosing their words about the existence of Zune phones. Looks like I was right. There will be Zune phones. There will be other kinds of Zune-enabled mobile devices. But they won't be crafted -- beyond the reference chassis -- by Microsoft.)
Think of what Microsoft is doing in phones as similar to what it has done in the PC market. Microsoft often develops reference implementations and encourages PC makers that they build PCs that adhere to a set of reference guidelines/specifications.
From one of my sources, who requested anonymity: "The (Zune phone) chassis 1 spec is challenging the manufacturers to come up with something that will please customers." This source said Microsoft was pitting a handful of cell-phone makers against one another to come up with the best implemention of the spec.
From what I've heard, Microsoft is focusing most of its reference efforts around the Windows Mobile 7 platform. I wouldn't be surprised to see Windows Mobile 7 as Microsoft's showcase for Zune Mobile; SkyBox 2.0; its SkyMarket (or SkyMart) phone-application store; a Zune Video service that could work across phones, MP3 players and Xbox consoles (could this be what Microsoft execs Joe Belfiore and Charlie Kindel could be working on now?); and other "Pink" services.
Will Microsoft never do its own phone? Never say never. But for the next couple of years, don't expect Microsoft to try to get into yet another low-margin, hardware-centric business.....