Whether it's labelled the PSP 4000 or the PSP 2, there's been a lot of rumour recently about an imminent successor to Sony's handheld console. There's also been a lot of talk about how Sony might react to the competition on offer from the phenomenal success of Apple's iPhone and iPod touch.

Unsurprisingly the console manufacturer has been comparatively mute in both cases, denying the existence of a PSP sequel and any threat from Apple. However, having spoken to an insider source – who's not Dave Perry, but is a developer working on the new hardware – we can reveal that the new handheld will arrive before Christmas and will be far more similar to the iPhone than the current device.

Like Apple's newcomer, the PSP 2 will be a compact device with a large touchscreen. However, where Sony's machine has the edge is when the touchscreen is slid open as it reveals familiar buttons, D-pads and – praise the Lord of Handhelds – dual analogue controls.

This new format should allow for both existing hardcore console titles as well as simpler touchscreen games along the lines of those currently available in the App Store. And like the App Store, (and in the absence of UMD), the games will all be available for digital download via the PlayStation Store.

Although this hasn't been confirmed, our speculation is that Sony's initial plans for a small upgrade to a PSP 4000 model have since been accelerated by the success of the iPhone and arrival of Nintendo DSi.

As yet those are all the details we have, but we understand the full specs and pricing will be unveiled at E3 in June.