In an interview with IGN, former Chief Xbox Officer Robbie Bach revealed that Microsoft were actually interested in jumping into the handheld market multiple times but that it never came to be because Microsoft didn’t focus.
According to Bach, Microsoft was interested in jumping into the handheld market because they felt that they needed to “play in that part of the ecosystem.” Because of this, the Xboy showed up as a project from Microsoft multiple times but Bach never remembered the device making it into the prototype stage. Bach noted that the reason why the handheld failed was they didn’t focus and “We just did not have the bandwidth.”
Bach also revealed that the Xboy wasn’t always called the Xboy but that “the hypothetical handheld was always called “X something.”
In the end Microsofts decision to abandon the Xboy worked out for them because they got to focus their efforts on the Xbox 360 instead, but Bach said that they got “lucky” because smartphones took over. To quote Bach:
“For us it was a focus issue and as it turned out strategically it was a smart decision, but that’s somewhat accidental.”
Still, it would’ve been interesting to see what the company would’ve came up with in that space.