This came straight from the horse's mouth. This should end all rumors regarding the demise of Microsoft's involvement with phones. A sad day to be a Windows-hating blogger.
"In the near-term, we'll run a more effective and focused phone portfolio while retaining capability for long-term reinvention in mobility. We plan to narrow our focus to three customer segments where we can make unique contributions and where we can differentiate through the combination of our hardware and software. We'll bring business customers the best management, security and productivity experiences they need; value phone buyers the communications services they want; and Windows fans the flagship devices they'll love. In the longer term, Microsoft devices will spark innovation, create new categories and generate opportunity for the Windows ecosystem more broadly. Our reinvention will be centered on creating mobility of experiences across the entire device family including phones."