NEW YORK (CNN/Money) - Sometime late next year, Sony will enter the handheld gaming market with the PSP -- a device that combines big-name games, an MP3 player and video playback.

This September, a Mountain View, Calif.-based startup will offer the same thing -- and throw in strong PDA functionality as well.

The start-up's name is Tapwave. Its product is called the Zodiac. And while the gaming industry is littered with the carcasses of Johnny-come-latelys, this one has a pedigree. Its founders were the first and second engineers of the Palm PDA system. Other executives come from Hewlett Packard (HPQ: Research, Estimates), Electronic Arts (ERTS: Research, Estimates) and Apple (AAPL: Research, Estimates).

Motorola (MOT: Research, Estimates), ATI (ATYT: Research, Estimates), and Yamaha have all signed on as partners. And 368 developers and publishers, including Atari (ATAR: Research, Estimates), Activision (ATVI: Research, Estimates), and THQ (THQI: Research, Estimates), have lined up to make games for the system.

Previously known as the Helix, the Zodiac won't be cheap, compared with Nintendo's $99 Game Boy Advance. The mainstream version, with 32 MB of internal memory, will cost $299. A souped-up version, with 128 MB of memory, will run for $399. Tapwave will begin taking pre-orders for the handheld on its Web site, with plans to begin shipping units by the end of that month.

Prices for game titles will vary, but high-end games, which will include "Neverwinter Nights," "Spy Hunter," "Tony Hawk" and "Doom II," will run for $29.95. At launch, there will be between 15 and 20 games optimized for the Zodiac. But the device will also run any of the 1,400 titles for Palm PDA systems.

Other features include a large, backlit screen, full 3D graphics, stereo speakers, rumble effects, dual rechargeable batteries which can last up to 16 hours and Bluetooth for wireless multiplayer gaming, supporting up to eight players.

To avoid supply problems, Tapwave will initially use a business model akin to that of Dell Computers (DELL: Research, Estimates), only taking orders online. Sometime in 2004, it hopes to offer the Zodiac in retail stores such as Best Buy or Circuit City.

The target audience, for now at least, is older hardcore gamers. That's a rather curious decision by Tapwave, since the Zodiac offers so much more than games -- and could conceivably appeal as much, if not more, to the typical PDA user as well. It runs the Palm OS, can play digital music, has an internal word processor from Wordsmith and accepts flash memory cards (used by many of today's digital cameras), which can greatly expand its memory. The $299 price point is a high one for gamers, but professionals regularly pay this much or more for a PDA.

Analysts say the device's gaming features will appeal to a widespread audience.

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"There are a lot of people, especially Palm OS users, who do play a lot of games – perhaps as much as 20 percent of the audience," said Todd Kort, a principal analyst at Gartner Dataquest. "Gaming is an important factor in deciding what to buy."

Let's not pretend that Tapwave's product is going to cause a real dent in Nintendo's Gameboy business. And with the software lineup Sony (SNE: Research, Estimates) is likely to have with its PSP, I doubt Sony executives are quaking in their boots -- even if Tapwave follows through with its plans to have a second generation Zodiac on the market by the time the PSP comes out.

Even as a niche product, it will have some competition, as Nokia (NOOK: Research, Estimates) plans to launch the N-gage, a cell phone/handheld gaming device/MP3 player in October. The N-gage also carries a $299 price tag. It has been beset by bad buzz since it debuted at the Electronic Entertainment Expo in May.

But gamers seem a little more receptive to the Zodiac -- and onlookers are intrigued.

"I don't think anybody's expecting it to be a blockbuster," said Kort. "I think it has a bigger chance than what I've heard coming out of Nokia."  

Morris is Director of Content Development for CNN/Money. Click here to send him an e-mail.