Could the Xbox Series S be MS entry into a Handheld Device

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This would certainly solve the problem of needing to make separate games for console and handheld that both Sony and Nintendo ran up against last gen.
Plus, with Series S already providing a lower power baseline, it might only be a couple more years until a Series P that can run the same games at lower settings is viable.

There are still some obstacles though; Series S is already having difficulty keeping up with the demands of 9th gen gaming, and we're still largely in the crossgen period. Adding a third, perhaps even lower, performance profile would be even more troublesome, especially given that the bar for graphics will be higher by the time it happens.

Another problem is that by the time it is viable, it will have missed out on a big chunk of the generation and its lifespan will be shortened by the arrival of the 10th gen.