Some new rumors indicate that Sony may be planning to release a new and improved edition of the PSP by the end of this year. The unit might be called the “PSP 2” if it ends up to be a complete redo. (it will still probably be considered a first generation portable gaming device) These rumors indicate that the PSP will get 4GB of internal NAND flash storage, which will be provided by Samsung Electronics. They also claim that SCEA may also include a small camera into the unit to allow taking pictures, recording videos, and streaming content to others using WiFi. (it can stream to PS3) Many posts also indicate that the PSP may be cut down in size of the depth by a quarter inch.
If this rumor were true this would be a great step for Sony and they would have fixed the biggest drawback of the unit, storage space. The PSP would cost more because of the included 4GB of memory, but would be cheaper than purchasing a 4GB Memory Stick Pro Duo costs ~$300. (1GB card = ~$80) With internal storage the portable can hold music, photos, and videos without the need of expensive MS media. The “PSP 2,” would be a big competitor for Apple’s iPod, which can now play video. Sony would once again take the lead because the iPod doesn’t offer speakers, a large screen, WiFi, or true gaming. UMD sales have also dropped drastically so SCEA may plan to offer downloadable content through the PSP’s browser as they stated at the Consumer Electronics Show 2006. (downloaded media can be stored on “new” internal drive).
I personally doubt that such a major hardware update will be released so soon unless they have a really good reason. For example the PlayStation was launched in 1995 and only in 2000 did they release a totally redesigned smaller version. Then for the PS2, which was launched in 2000, there were no major hard ware updates until 2004 when they completely redid it and released a slim PS2. With this record, very slight chances that a new PSP will be released within a two year period.