An executive in Microsoft's entertainment and games division Tuesday hinted that Microsoft may be developing its own rival to Apple's iPhone, based on Windows Mobile OS.

Speaking at Citi's annual Global Technology Conference in New York on Tuesday, Mindy Mount, corporate vice president and CFO for Microsoft's Entertainment and Devices Division, said it's not "unreasonable" to think that Microsoft will integrate photo, music and touchscreen features into a Windows Mobile product in the future, though she declined to comment on the specifics of when or what that might look like.

Microsoft's idea with Windows Mobile has been to move everyday business capabilities, such as accessing email, from the computer to the mobile device. However, most people "tend to have one phone for personal as well as work use," Mount said. "Being able to do pictures and music is something that consumers are going to want, so it's a natural thing for us to want in our product roadmap."

Microsoft is rumoured to be evolving its Zune multimedia player - its rival to the iPod - with new features, though Mount declined to confirm this on Tuesday. But a hybrid product melding Zune, which so far has had lacklustre response from consumers, with Windows Mobile features is not completely unrealistic for the future.

Microsoft has already worked with hardware partners to develop Windows Mobile handsets with touchscreen capabilities that are similar to the iPhone's. For example, the HTC Touch from High Tech Computer is one of the latest such Windows Mobile devices, but doesn't have the type of multimedia capabilities that give the iPhone an edge over rival smartphones.

Market research firm iSuppli said Tuesday that in July, its first full month of release, the iPhone outsold popular competitors such as the Research in Motion Ltd. Blackberry and Palm Treo devices.

Regarding RIM, Mount seemed to shoot down the speculation of last week that Microsoft is in talks to purchase the Canadian maker of mobile hardware and software. "We don't comment on rumours, but what I would ask people is, what that really gets you," she said.

Much of RIM's success has been with the device portion of its BlackBerry business, whereas Microsoft has been very successful with using third parties to build its Windows Mobile devices, Mount said. The company sold 11 million Windows Mobile licenses last year, and expects to do 20 million in the current fiscal year. "We're pretty happy with that roadmap right now," she said.

That roadmap so far does not include Microsoft offering hardware for its Windows Mobile OS, which also means if the company did release an iPhone rival based on Windows Mobile, it's unclear whether it would be through a third party or from the company itself. Still, if the Xbox 360, Zune and Milan table-top computer with touchscreen features the company previewed earlier this year are any indication, Microsoft seems to be warming up to the idea of offering consumer hardware devices alongside its traditional software, so an iPhone rival from the vendor is possible.