Zune Update Hints At PhoneZune Update Hints At Phone

Several obscure files in a recent firmware update for Microsoft's Zune MP3 player indicate the company plans on releasing a version of the device that includes phone capabilities.

The update, version 4.2.202.0, includes a driver package with several Setup Information Files (INF) that specifically reference a phone. While most of the files in the package read, in part, %Zune.DeviceDesC%, several others read: %Phone.DeviceDesC%.

"The elusive 'Zune Phone' is pretty much confirmed," wrote tech blogger Long Zheng, who first spotted the files.

Zheng's story comes on the heels of a report from a financial analyst who also predicted Microsoft is set to release a Zune Phone.

Jefferies stock picker Katherine Egbert said the company would likely unveil the device next month at the Mobile World Congress in San Francisco.

Alternately, the software maker might introduce its phone at the CTIA conference in March in Las Vegas. The pone would likely feature a built-in camera and HD video screen, Egbert said in an interview with BusinessWeek.

Microsoft is lagging in the phone sector. Windows Mobile's share of the worldwide smartphone market was down to 7.9% as of the third quarter, according to Gartner. The Apple iPhone's share stood at 17.1%, while RIM held 20.8%. Microsoft also has to now contend with the iPad

To boot, Google is set to become a bigger presence in the market with the introduction earlier this month of the Android-based Nexus One.

The introduction of its own, branded phone could help Microsoft regain some momentum in the market. Microsoft could slap the Zune tag on its phone, but given that device's failure to make much of a dent in the MP3 market the company might look for a fresh start with a new brand.

Also, Microsoft will be looking for a boost when it introduces Windows Mobile 7, possibly as early as next month—though the company has yet to confirm a date. Tech blogs are rife with speculation about which particular features Windows Mobile 7 will include. It's likely to offer enhanced touch-screen support, given that such functionality is already built into its PC-based cousin, Windows 7.

Microsoft shares were off 1.5%, to $29.22, in early trading Thursday.

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