Report: Microsoft Working on iPod, PSP 'Killer'

Microsoft Corp. (MSFT) is working on a handheld gaming device that will also play music and movies in a challenge to rivals such as Sony and Apple, the San Jose Mercury News said on Monday.

The software giant's new device will probably not hit the market for at least a year and possibly two, the newspaper said, citing unidentified sources.

It will compete against popular gadgets like Sony Corp.'s (SNE) PlayStation Portable, which can play games, music and movies, and Apple Computer Inc.'s (AAPL) iPod music players, the report said.

The project is being headed by vice president J Allard and other veterans of the team responsible for Microsoft's Xbox 360 video game console, it said.

Microsoft has so far targeted the gaming and mobile markets separately.

It launched its next-generation Xbox 360 game console last November, and earlier this month unveiled a portable computer the size of a paperback book.