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Microsoft reportedly scaled back plans to develop its own Xbox handheld console.

Microsoft was reportedly aiming to launch its own handheld device around 2027, possibly alongside its next-gen Xbox. Microsoft gaming boss Phil Spencer recently indicated a first-party Xbox handheld is still years away.

However, a new report by Windows Central now claims Microsoft's priorities have "shifted," with the team now focusing on enhancing Windows 11 gaming performance for third-party devices, collaborating with partners like Asus on its Xbox-branded handheld device, codenamed Project Kennan. According to Windows Central, staff were internally told that "priorities are moving more deeply towards third-party OEM handhelds in the interim."

Photos of Asus' Xbox-branded handheld device leaked online earlier this month. Two images of the Asus ROG Ally 2 device — one white, one black — were published via the Indonesian certification office, which referenced a (now deleted) listing on the U.S.'s FCC website. Interestingly, Windows Central's report adds "the hardware side is essentially finished," and is believed to be among the first devices to feature the AMD Z2 Extreme processor.

The technical specifications at this stage are still fragmented, so it’s not yet clear how the device will perform or whether there’s any significant difference between the black and white versions. Rumor has it the units are "currently being tested at Microsoft HQ rather openly as we speak."

Last month, Asus Republic of Gamers' X/Twitter account shared a teaser offering a brief glimpse at both a Republic of Gamers (ROG) Xbox controller and handheld system. The official Xbox account acknowledged the tweet with a cheeky wide-eyed gif, hinting that a formal reveal is on the horizon.

The successor to the Xbox Series X is reportedly "fully" in production and set to launch in two years, aligning with Xbox president Sarah Bond’s recent remarks that Microsoft was "moving full speed ahead on our next generation hardware, focused on delivering the biggest technological leap ever in a generation."