Sources say that the Microsoft Surface Phone replaces a metal-clad, Intel-powered phone that would have been driven by Windows 10. Today's report calls the cancelled device a carryover from Microsoft's purchase of Nokia Devices and Services. That phone was allegedly going to be released next May.
Some insiders have theorized that Microsoft's lack of a more widespread carrier release for the Microsoft Lumia 950 and Microsoft Lumia 950 XL in the U.S., is related to the desire of the powers that be at Microsoft to build a Surface Phone. That includes CEO Satya Nadella, and Surface head Panay. This could also explain why the company isn't spending big bucks to market its new flagship phones.
Previous rumors say that the Surface Phone will focus on productivity, not specs. It will be considered a flagship model and will be powered by a Snapdragon 820 chipset, and will use the advanced cooling technique used by the Lumia 950 XL.