Microsoft boss Satya Nadella has given the strongest hint to date that the long-rumored Surface phone is in development. Speaking during an interview with the Australian Financial Review, the CEO talked about his company redefining the field with the "ultimate mobile device."

It looked as if Microsoft was finally abandoning the smartphone market back in May when it sold the feature phone business it acquired from Nokia to Foxconn subsidiary FIH Mobile. A week later, the company announced plans to "streamline" its smartphone hardware business, which involved eliminating 1850 jobs and restructuring costs totaling $950 million.

But it appears this didn't spell the end of Microsoft's smartphone ambitions. Nadella said the company wasn't interested in launching any technology that doesn't introduce something new, and it would apply that mindset to smartphones.

"We don't want to be driven by just envy of what others have, the question is, what can we bring? That's where I look at any device form factor or any technology, even AI," he said. "We will continue to be in the phone market not as defined by today's market leaders, but by what it is that we can uniquely do in what is the most ultimate mobile device."

With Microsoft's other Surface products - the Surface Pro 4, Surface Book, and the recent Surface Studio - proving popular, it's not a great surprise to find the brand making its way to smartphones.

Almost a year ago, Microsoft executive vice president and chief marketing officer Chris Capossela said the company was working on a "breakthrough" smartphone that would make Apple fans "pause before they buy their 17th iPhone."

With Windows Phones making up just 0.4 percent of the smartphone market in Q2 2016, the company knows this is one area where it really struggles. While a Surface Phone may not threaten Samsung and Apple's domination, you would expect an "ultimate mobile device" to do well.