Are Microsoft Manufactured Smartphones in the Pipeline?

After Microsoft announced this week that it will sell a pair of branded Surface tablets, an analyst suggested that the company is also working with a contract manufacturer to build its own Windows Phone 8-based smartphone. 

Rick Sherlund, an analyst at Nomura said in a note to investors that industry sources have told him that Microsoft may already be working with a contract manufacturer on the new handset.

"It is unclear to us whether this would be a reference platform or whether this may be a go-to-market Microsoft branded handset," Sherlund said.

"We would not be surprised if Microsoft were to decide to bring their own handset to market next year given that Microsoft has decided to bring to market their own Windows 8 "Surface' tablet/PC products," he added

Some reports, including one in Business Insider, suggest that Microsoft might need to build its own hardware if struggling Nokia, a key hardware partner, falls into deeper trouble. Such problems could imperil its Windows Phone partnership with the Redmond software giant, the reports said. 
Just last week, Nokia announced plans to lay off 10,000 workers amid financial troubles and slow sales of its Lumia devices that run Windows Phone 7.

The Windows Phone 8 operating system won't run existing Windows Phones, which analysts predict could further hurt Nokia sales in the coming months.