Rumors of an iPhone-style Microsoft phone running on Nvidia silicon confirm, in part, what Nvidia has been talking about since early this year. In the spring, Nvidia demonstrated its Tegra chip-based mobile phone prototype to me and pretty much anyone in the media who made a visit to their Santa, Clara, Calif. headquarters.
iPhone-style devices with Nvdia's Tegra APX (or Tegra 600) incorporate most of the functionality of a PC. And Nvidia is building all of the core electronics that will run a mobile internet device, not just the graphics component. (Nvidia Mobile Device page showing Tegra 600 series and Tegra APX.)
Tegra is different from Intel's Atom processor platform--which is offered as a processor and a separate chipset--because Nvidia integrates everything onto one piece of silicon. This makes it more akin to Intel's upcoming Moorestown processor which is due in early 2010, or Qualcomm's Snapdragon.