Rumor Mill: Is Microsoft making a Zune smartphone?

Rumors are circulating of a possible Microsoft smartphone based on the software giant's Zune digital music player. Code-named "Pink," the phone will use technology from Microsoft's acquisition of Danger, the company that brought the Sidekick to T-Mobile.

The phone may be set to debut as early as January at the Consumer Electronics Show or at Mobile World Congress in Barcelona in February, according to a report on Rumors have swirled for more than a year around whether Microsoft would be readying a Zune-branded phone. Microsoft, as late as June of this year, denied any kind of development of such a phone.

The most obvious competition for the phone would be from Microsoft nemesis Apple and the iPhone 3G. While Microsoft's position in the mobile space has been limited to the widespread use of its Windows Mobile platform, a foray into handset manufacturing would put it squarely into competition with Apple and other phones that double as digital music players.    

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