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I mean, Microsoft has been crushed by Apple in MP3 players (Zune anyone), annihilated by Apple/Samsung/HTC/etc in phones, has been crushed by Apple in tablets, so why not now get crushed by Nintendo with handhelds?

What Microsoft needs is to either exit the console sphere and focus on the PC platform and trying to take on Valve (or maybe just buy them out) or to work on getting games for their console that people actually want to play. A handheld would just be another massacre of Microsoft's lack of charisma/brand-power-advertising/etc.