Software is definitely the #1 issue for Sony in Japan (and its Nintendos #1 issue in Europe). If Sony goes with a hybrid device it's also a very tricky situation for the following reasons.
1. Bulky handhelds are not attractive to the mass consumer, most people want light, sleek and small. This limits options when it comes to power.
2. Battery life, if a handheld is too powerful its gonna drain the battery life super fast.
Maybe im wrong, but I cant recall a really powerful portable that was bulky and a shorter battery life that sold really well? Sony of course knows this so trying to go for a smaller, less powerful, longer battery life portable would be a wise goal. But if they do this, its going to be a lot closer in specs to the NS2 which for 3rd parties will be fantastic as they can put their games on both platforms. But then this doesnt help Sony's situation at all (from a 3rd party standpoint)
This is the first time, that I know of, where Nintendo is now getting day 1 releases of big third party games. I also keep hearing rumors that one of the reasons GTA6 was delayed was for a NS2 port.
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