Microsoft may have shelved its Xbox Handheld, and the reason is Windows 11
has temporarily shelved development of its own
Xbox
handheld gaming device to prioritize improving Windows 11 performance for third-party gaming handhelds, according to sources familiar with the company's plans.
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The decision represents a strategic shift as Microsoft faces mounting competition from Valve's SteamOS platform.
The tech giant's internal first-party handheld project, which was targeting a 2027 launch alongside the next Xbox console, has been put on hold while teams redirect efforts toward optimizing Windows 11 for devices like the upcoming
Asus ROG Ally
successor, codenamed "
Project Kennan
." Windows Latest reports that Microsoft announced the reprioritization internally, though no layoffs have occurred as a result of the decision.
Microsoft's rumored handheld with Asus remains a priority
Microsoft's partnership with Asus remains unaffected by the internal handheld delay. Project Kennan, expected to launch later this year with AMD's Z2 Extreme processor, represents Microsoft's near-term handheld gaming strategy. The hardware development is reportedly complete, with software optimization now the primary focus.
The shift comes as SteamOS poses an increasing threat to Windows' gaming dominance.
Recent tests show significant battery life and performance improvements when SteamOS is installed on Windows-based handhelds like the Legion Go and ROG Ally, though users lose access to services like PC Game Pass.
Microsoft continues developing next-generation Xbox cloud systems at its Redmond headquarters, aiming to match
NVIDIA GeForce Now
's latency performance. The company also cancelled its cloud-focused mini console "Hobart" as part of broader strategic realignments.
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While Microsoft maintains long-term ambitions for a native Xbox handheld, the immediate focus on third-party partnerships and Windows optimization reflects the competitive pressure from established platforms like Steam Deck ahead of the company's June 8
Xbox Showcase
.
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