Sony (NYSE:SONY) was once a major player in handheld gaming consoles. Its first handheld, the PSP (PlayStation Portable), sold 81 million units between 2004 and 2014. But its successor, the PS Vita, only sold 16 million units between its launch in late 2011 and its discontinuation earlier this year.

The PS Vita failed due to a lack of compelling titles, weak marketing efforts, its use of pricey proprietary memory cards, and tough competition from Nintendo's (OTC:NTDOY) 3DS, which used weaker hardware but dazzled gamers with its dual screens and stereoscopic 3D effects.

A gamer plays a game on a PS Vita.

Image source: Sony.

In a recent interview with Game Informer, Sony Interactive Entertainment CEO Jim Ryan confirmed that the company would no longer develop handheld consoles. Ryan stated that the Vita was "brilliant in many ways," but that "clearly it's a business that we're no longer in now."

Ryan's statement wasn't surprising, since Sony already leads the home gaming console market with the PS4, which topped 100 million shipments over the past six years. But it's also surrendering the handheld market to Nintendo, which successfully bridged the gap between handheld and home consoles with the Switch.

Mixed signals about handheld consoles

Sony has sent mixed signals about the future of its handheld consoles over the past few years. In 2015, Sony Computer Entertainment (SCE) Worldwide Studios president Shuhei Yoshida stated that the "culture of playing portable games continues, but the climate is not healthy for now because of the huge dominance of mobile gaming." Jack Tretton, the former CEO of SCE America, echoed that sentiment in 2016, telling IGN that the PS Vita was a"great machine" which arrived "too late" to the market.

But last year, John Kodera, then-CEO of Sony Interactive Entertainment, told Bloomberg that Sony was still experimenting with portable gaming, with a focus on cross-platform ideas instead of "separating portable gaming from consoles." That comment suggested that Sony might develop more mobile games or a hybrid device like the Switch in the future.

However, Sony's restructuring of its PlayStation business earlier this year replaced Kodera, who became the unit's deputy president, with Jim Ryan. Ryan was promoted to focus on the expansion of the PlayStation Network, and his recent comments about handheld consoles indicate that business ended with the PS Vita.

Sony's PS Vita.

Image source: Sony.

Why Sony isn't interested in challenging Nintendo

For now, Sony seems more interested in next-gen gaming platforms, like cloud gaming and virtual reality, than handheld gaming consoles.

That isn't surprising, for three reasons: Smartphones disrupted the handheld console market, its main rival Microsoft (NASDAQ:MSFT) isn't interested in handheld games, and Nintendo consistently dominated that niche since it launched the original Game Boy 30 years ago.

Over those three decades, Nintendo sold 119 million Game Boys, 82 million GBAs, 155 million units of the Nintendo DS, and 75 million units of the 3DS. That streak of hit devices, supported by strong first-party titles from its iconic characters, made it tough for other rivals to crack the market.

Nintendo's first attempt to straddle the home and handheld gaming markets, the Wii U, flopped due to poor marketing efforts, a lack of third-party games, and a second screen which only worked in proximity to the TV-tethered console. But the Switch rectified those problems with a seamless transition between its handheld and TV modes.

That convenient setup impressed gamers, and Nintendo shipped over 40 million Switches since its launch in early 2017. Therefore, it's arguably too late for Sony to launch a competing hybrid console, especially with the PS5 scheduled to launch next year.

Competing with Nintendo isn't the priority

Sony's gaming unit generated 23% of its revenue and 27% of its operating income in the first half of 2019. For the full year, Sony expects the unit's revenue to decline 13% and for its operating income to tumble 23%, as gamers buy fewer PS4 consoles ahead of the PS5's arrival.

Sony is focusing on two things during this cyclical slowdown: Growing its recurring subscription revenue on the PlayStation Network, and ensuring a strong launch for the PS5 against Microsoft's next-gen Xbox. It could also expand that ecosystem with investments in its PS Now cloud gaming platform and PlayStation VR.

Looking ahead, Sony might launch fresh ways to stream PS games to PCs and mobile devices, launch new gaming smartphones, or develop more mobile games to expand its reach beyond consoles. However, competing against Nintendo isn't a priority for Sony, and it seems content to let Nintendo dominate the market for hybrid handheld gaming devices for the foreseeable future.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.