Microsoft is teaming up with third-party OEMs to make an Xbox-branded PC gaming handheld that's targeting release in 2025, sources tell Windows Central.

Xbox is everywhere these days, including new form factors like handhelds. Microsoft has already tried to push cloud-only handheld gaming by partnering with Logitech for its G Cloud device, and now reports say that Microsoft will do the same with dedicated PC handhelds.
The new device won't be official Microsoft first-party hardware, though. So the term 'Xbox handheld' is a misnomer--it's more of a handheld with an Xbox button-logo on it, one that likely runs a specific new OS with a UI optimized for handhelds (we know from experience that Windows 11 is not great for these screens). The new handheld is said be part of a hardware project that's codenamed "Kennan".
Xbox gaming CEO Phil Spencer has commented on an Xbox handheld in the past, saying that such a device was years away. Earlier reports had said that a handheld were in development internally at Xbox, but it's likely that these reports were referring to Kennan and not a console-handheld hybrid similar to the Nintendo Switch.
The PC handheld market is indeed small, and is expected to only reach 8 million by the end of 2025. The dominant force in the market is the Steam Deck, but Microsoft could pull more share with an OEM-Xbox PC handheld that packs in a unique UI, value-added services, convenience features, and enough horsepower to support popular games at decent performance targets.
The move by Microsoft would be a way to expand its foothold on software and services across a wider addressable userbase, and also tool Windows to a handheld use-case profile along the way.