According to The Verge, the tablet is being produced at Microsoft facilities in California. It's said to carry a customized version of Windows and is powered by an ARM SoC (system-on-a-chip) processor. It might also carry Microsoft's Xbox brand, making it a hub for personal gaming, social networking and entertainment.
Microsoft did not comment on the report.
[ Microsoft's CEO is optimistic about the market for Windows Phone 8 devices. Read Ballmer Says Windows Phone Sales To Surge. ]
Such a move would be consistent with other recent moves by Microsoft. Last month it introduced Surface RT, its first entry into the PC hardware business. Surface RT runs a version of Windows 8, Windows RT that is restricted to running Metro-style apps available only from the company's online Windows Store. The device starts at $499, the same entry point for Apple's new iPad.
In the coming weeks, Microsoft plans to ship Surface Pro. It will run Windows 8 Professional on x86 chips and will be compatible with the full suite of Windows legacy applications.
Microsoft is also said to be working on its own version of a Windows Phone 8 smartphone that would compete with products sold by its existing partners, such as Nokia and Samsung.
Citing unidentified sources, The Wall Street Journal said the company is testing prototypes with Asian component suppliers. The newspaper's sources said the device would feature a screen measuring between 4 and 5 inches diagonally. That would put it somewhere between Apple's new iPhone 5 and the larger Samsung Galaxy S III.
The report contradicts statements that a Microsoft executive made to InformationWeek earlier this year. Asked if the company planned to make its own phones, Greg Sullivan, senior marketing manager for Windows Phone, said, "No, we do not." Hardware makers building Windows Phone 8 devices include HTC, Nokia and Samsung.
"We have a strong ecosystem of partners that we are very satisfied with," Sullivan said in an interview, in July.
Microsoft's hardware ambitions aren't sitting well with all of its PC- and phone-building partners. Lingxian Lang, China operations manager for Acer, reportedly said that Redmond's plan to compete with partners would ultimately see it eating "hard rice."
But with the growing abundance of free software that competes with Microsoft's paid offerings, from Google's Android operating system to IBM's Lotus Symphony suite of productivity apps, the company may have little choice but to enter the hardware business in a bigger way.
Upgrading isn't the easy decision that Win 7 was. We take a close look at Server 2012, changes to mobility and security, and more in the new Here Comes Windows 8 issue of InformationWeek. Also in this issue: Why you should have the difficult conversations about the value of OS and PC upgrades before discussing Windows 8. (Free registration required.)