Microsoft Shelves Plans for Xbox Handheld Console, Focuses on Third-Party Partners Instead

Microsoft has reportedly shelved its plans for an "internally developed" Xbox handheld console—at least for now.

The tech giant was rumored to be developing a native Xbox handheld device as part of its next-generation gaming ecosystem, originally slated to launch around 2027. However, new insights suggest a major shift in strategy.

Microsoft's Xbox Handheld: Delayed but Not Dead

According to a new report by Windows Central, Microsoft's internal handheld console project—codenamed by some sources as “Pembrooke”—has been temporarily sidelined. Instead, the focus is now on improving Windows 11 gaming performance and supporting third-party devices like Asus’ upcoming Xbox-branded handheld, codenamed Project Kennan.

While Microsoft has not officially confirmed the move, internal communications reportedly informed employees that priorities are shifting “more deeply towards third-party OEM handhelds in the interim.” 

This doesn't mean Microsoft's own handheld dreams are gone for good—but they are definitely on pause.

Asus Project Kennan: Xbox’s OEM Partner Device

Interestingly, the Asus ROG Ally 2, believed to be the hardware behind Project Kennan, recently had images leak online through the Indonesian certification office and the U.S. FCC (now removed). 

Available in both black and white variants, the device is expected to feature the new AMD Z2 Extreme processor, making it one of the first to do so.

While official specifications are still under wraps, reports suggest the hardware is “essentially finished” and currently undergoing testing—openly, at Microsoft HQ. The device is expected to launch later in 2025, offering a console-like experience powered by Windows 11, enhanced by deep Xbox integration.

Why Microsoft Shifted Gears

The sudden strategy change appears to be driven by two primary concerns:

1. SteamOS vs. Windows 11 Performance: Devices like the Steam Deck and Lenovo Legion Go running SteamOS have demonstrated better gaming performance and battery life than their Windows 11 counterparts. Microsoft now recognizes SteamOS as a serious threat to Windows' dominance in the handheld gaming market.

2. Optimization Over New Hardware: Microsoft is investing in enhancing Windows 11 for handheld gaming—improving Xbox app performance, cloud gaming integration, and compatibility with devices like the ROG Ally. The idea is to optimize the platform before investing further in proprietary hardware.

What's Next?

All eyes are now on the Xbox Showcase set for June 8, 2025, where Microsoft is expected to unveil new titles and potentially tease its hardware plans. While Xbox Game Pass continues to dominate with a strong library of content, the long-term success of Microsoft’s hardware ambitions may depend on how fast it can respond to growing competition from PlayStation, Nintendo, and Valve.