Lenovo's Legion Go S with SteamOS started shipping on the 25th of May, and the Nintendo Switch 2's official launch date is finally in single digits. Ultimately, the gaming handheld market is rapidly evolving, which puts pressure on Microsoft to step up its Xbox handheld plans. In case you aren't aware, Microsoft has reportedly been working on an Xbox-branded gaming handheld expected to roll out later this year.

That said, I might need to correct myself now — it was expected to roll out later this year. Microsoft has reportedly just put its Xbox gaming handheld plans on pause, choosing instead to go all-in on improving Windows 11 gaming performance.

SteamOS could be the reason Microsoft is holding back

According to Windows Central's Executive Editor, Jez Corden's sources, Microsoft made an internal announcement today stating that its priorities are shifting toward improving third-party OEM handhelds. The Redmond-based giant plans to direct its efforts toward enhancing Windows 11 gaming performance instead.

Corden states that this could specifically benefit devices like Microsoft's partner Xbox handheld with ASUS, code-named Project Keenan. He mentions that there's a chance Microsoft made this decision because of the "existential threat from SteamOS," especially since it's said to theoretically deliver better gaming performance than Windows 11.

Nonetheless, Corden's sources say Microsoft is still investing heavily in an Xbox handheld, but for the time being, it's shifting its priorities and resources to improving Windows 11 gaming performance and focusing on devices like Keenan. He also mentions that there haven't been any layoffs due to this reprioritization.

This shift in priorities is definitely a move in the right direction, since Windows 11 still needs a lot of work to thrive on gaming handhelds, it wouldn’t make much sense for Microsoft to launch its own device before the software experience is truly ready. After all, if Windows 11 continues to lag behind SteamOS in performance and usability, especially on portable hardware, any new Xbox-branded handheld would be setting itself up for criticism right out of the gate.

At the same time, it's bound to disappoint a lot of Xbox fans who’ve been patiently waiting to see Microsoft join the handheld race. Though it’s a smarter move in the long run (as much as it hurts to admit), the delay also kind of feels like a missed opportunity, especially with competitors like Lenovo and Nintendo pushing ahead.