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3 reasons

1. Lack of support by Sony especially on 2008.
2. Lot of ports. PS2 to PSP? Wii to PSP? DS to PSP?
3. Piracy ( everyone who denies that are only fooling themselves ) It sure helps sell a lot of hardware but it became a double edge sword and really hurt Sony in the long run.

It's the mixture of those 3.

PS. PSP is not a failure selling 55 million ( still selling ) is not a failure. I really hope Metal gear and KH will invigorate it sale for one last push and PSP is still far from dead yet thanks to Japan.