Microsoft's next device may be Internet-connected eyewear, similar to Google Glass, according to people with knowledge of the matter speaking with The Wall Street Journal.
One source said Microsoft has spoken with "several" Asian component makers to supply the company with cameras and other components for the prototype technology.
This source said Microsoft's exploration of wearable technology may only be experimental and could never achieve mass production.
Microsoft is "determined to take the lead in hardware manufacturing to make sure the company won't miss out on the opportunities in the wearable gadget market," the source said.
It is unclear if Microsoft's rumored eyewear technology would have any connection to Xbox.
A leaked 56-page document from June 2012 suggested Microsoft was planning to offer augmented-reality glasses for the Xbox One. This technology would be called "Fortaleza" and is planned to launch sometime in 2014, the document said. The glasses will reportedly run on Wi-Fi and 4G connections.
Separately, multiple sources told GameSpot sister site Zdnet that Kinect designer Alex Kipman is leading Microsoft's efforts in the wearable technology sector. Kipman has been spearheading Xbox incubation projects for the past few years, Zdnet notes.
A Microsoft representative was not immediately available to comment.
Sony is reportedly working on a virtual reality headset for the PlayStation 4 that could be announced in 2014.