Microsoft reportedly canceled its in-house Xbox handheld over AMD’s 10 million unit sales demand

Microsoft’s debut into the gaming handheld market could have taken a completely different turn based on some rumors that have recently begun floating around. Instead of the ROG Xbox Ally and Ally X, industry insider KeplerL2 reveals the company initially planned to make an in-house dedicated Xbox handheld.

Unfortunately, the unannounced Xbox handheld was reportedly scrapped during the planning phase due to stringent requirements from AMD. According to KeplerL2, who has a solid track record in hardware manufacturing circles, Microsoft had been in talks with AMD to develop a custom system-on-chip (SoC) for the device. 

However, the partnership broke down when AMD insisted that Microsoft commit to at least 10 million units to offset research and development costs. This demand reportedly proved too risky for Microsoft, given the modest sales performance of handhelds like the Steam Deck and the Nintendo Switch.

KeplerL2 explained in a detailed response on NeoGAF:

As far as I know, the handheld was canceled because AMD wanted a commitment of 10M+ units to justify making a dedicated SoC, but with Steam Deck selling 5 million units and ASUS ROG/Lenovo Legion only selling 1–2 Million, Microsoft didn’t want to take the risk. 

This insider scoop has sparked a bit of debate among industry insiders, particularly Windows Central editor and Xbox reporter, Jez Corden, who dismissed this claim on X in a response to KeplerL2’s leak, stating, “this isn’t even slightly true, btw.”

This rebuttal does, however, align with Microsoft's recent affirmation that the company is investing in next-generation hardware, including collaboration with AMD on future consoles. Microsoft publicly confirmed that it is still committed to first-party Xbox hardware with comments from both President Sarah Bond and AMD CEO Lisa Su.

As we know, Microsoft has pivoted to a collaboration with Asus, resulting in the upcoming ROG Xbox Ally, a rebranded iteration of the ROG Ally X optimized for Xbox Game Pass and Windows gaming. The ROG Xbox Ally and Ally X will release on October 16, 2025, featuring an upgraded AMD Ryzen Z1 Extreme processor, 24GB of LPDDR5X RAM, a 7-inch 120Hz 1080p display, and 1TB of SSD storage.

As the ROG Xbox Ally and Ally X approach launch, with some lucky users having pre-orders already delivered, industry watchers wonder whether this collaboration is a long-term strategy for Microsoft in the handheld category or a mere stopgap amid shifting priorities.

Preorder the ROG Xbox Ally here