Microsoft currently testing its own smartphone, says WSJ

Microsoft surprised the world earlier this year when it moved into producing its own computer hardware with the Surface, but the company's plans may not stop there. According to the Wall Street Journal's sources, Microsoft is currently testing a smartphone with Asian suppliers, although it's unclear whether or not the device will enter mass production. The phone reportedly has a screen size somewhere between four and five inches.
The Verge previously heard that while Microsoft was considering making its own flagship Windows Phone, such a device would be unlikely to see the light of day before the year is out. Indeed, Microsoft has gone out of its way to promote the efforts of hardware partners such as HTC and Nokia, and our sources tell us that any "Surface phone" would likely be deployed as a "Plan B" should Windows Phone 8 fail to gain significant traction. If the Journal's report is to be believed, however, this plan may be further along than previously thought.