I dunno man, handhelds are super popular. Look at all the major pc companies, Lenovo, Asus, MSI all have made handhelds with many more to come.
What lacks in those windows handhelds is a good console experience because of Windows 11. If Microsoft can focus on making a console handheld experience like Valve does on the Steam deck then I don't see why it can't work.
If they can make a xbox series s handheld for 400-450 range with a nice screen (oled), run 800p at least with solid battery life, i think it'll sell. Obviously backwards compatible to the first Xbox and be able to launch multiple launchers including Steam.
It could be also an idea for them to partner with a PC company like Acer for example to come up with a handheld based on Xbox software on it. I think that would be pretty sick