Sony's PSP handheld entertainment system recently launched this year, market analysts expect a next-generation PSP system to drop in mid-2006.
According Piper Jaffray, Sony is expected to launch a next-generation PSP system that includes a hard drive to store audio / video media in mid-2006. The current PSP model uses Memory Stick flash memory to store media.
The company has shipped 6 million PSP units worldwide.
A PSP hard drive model would likely be used to compete against Apple's best-selling iPod player, but include the ability to play games, movies, and videos.
Piper Jaffray also predicted that Microsoft would retail the Xbox 360 at two seperate price configurations.
While a hard drive version of the PSP may be in development, it is unlikely that the hardware will be a next-generation successor to the PSP.
The PSP has not yet been in the retail channel for a year in any territory and could still see plenty of growth in the handheld market.
The handheld has also yet to see a price reduction in order to sell to mass market consumers.
The PSP is at war against the Nintendo DS system, which sells for about half the price of Sony's handheld. The Nintendo DS has outsold the PSP in Japan for several months on best-sellers like Nintendogs, Brain Training, and Gentle Brain Exercises.