If this second handheld system happens, we'd expect it to be more like a 'traditional' Xbox console that supports console games. If the above 2025 system launches and Microsoft continues to work on compatibility for a few years, the team could potentially get existing Xbox console games running on this new device.

Microsoft is reportedly working with third-party OEMs to make an Xbox-branded PC gaming handheld, but it won't be a PS Vita-like Xbox console handheld.

Microsoft apparently wants its own handheld PC. The first generation is to be developed in collaboration with Asus.

According to Warren, Microsoft's larger goal is to unify Windows and Xbox with a universal library of PC and Xbox games. He says the Xbox handheld being made by ASUS will run a version of Windows but with an interface that's more akin to the GUI on Xbox consoles.

The Asus ROG Ally, along with its premium sibling, the Asus ROG Ally X, stand among the best handheld gaming consoles you can get, so Microsoft would do well to partner up with the company for a new handheld device — especially if it comes with an all-new OS platform that caters to Xbox.

A new report from Windows Central claims that “Xbox’s new hardware plans begin with a gaming handheld set for later this year, with full next-gen consoles targeting 2027” and that Microsoft is working on a “Project Keenan” handheld in partnership with an unnamed OEM.

A next-generation, full-size Xbox will take another two years, according to anonymous sources, but Microsoft's take on the handheld gaming PC could debut in the coming months.

According to Windows Central, Microsoft is working on a portable Xbox console that could be released by the end of the year to rival the Nintendo Switch 2 as well as other handhelds like the Steam Deck.