LOS ANGELES (CNN/Money) - Sony threw the gaming industry a curve Wednesday, announcing plans to launch a portable gaming system, which will compete directly with Nintendo's GameBoy Advance.

Dubbed the PSP (PlayStation Portable), the system is scheduled to be released for the 2004 holiday season. The company did not announce any pricing details.

The PSP will use a new proprietary storage disk, offer a backlit screen and have a rechargeable battery. It will also offer 3D graphics and sound and will measure approximately 4.5 inches and offer a wide-screen viewing format. Sony Computer Entertainment president and CEO Ken Kutaragi called the device "the Walkman of the 21st century".

Additionally, the machine will come equipped with a USB 2.0 port, allowing high speed data transfers and will have a slot for Sony's memory stick data storage technology.

The news sent shares of Nintendo down nearly 8 percent to close Tokyo trading Wednesday at ¥8,890. That was off its low of the day of ¥8,640 though.

Meanwhile Sony (SNE: Research, Estimates) stock closed up 4 percent to ¥3,040 in Tokyo trading, its best close since it shocked markets three weeks ago with its worst quarterly loss in more than eight years. The loss was mainly at its electronics division, where sales of Vaio PCs and color televisions languished. Shares of Sony's American depositary receipts gained nearly 2 percent in U.S. trading Tuesday following the late afternoon announcment.

Nintendo has long been the king of the hill of handheld gaming, but analysts and industry insiders have wondered when Sony would try to move in. Ten years ago, Sony launched the PlayStation, which eventually gave it a dominant position in the video game industry.

At its press conference before the Electronic Entertainment Expo, Sony moved to maintain that dominance. And while it didn't cut the price of its PS2 console, it did make some changes.

Games of the future For a closer look at Electronic Entertainment Expo (E3), the computer gaming industry's annual trade show, click here.

Starting in June, Sony will sell a revamped system that will be bundled with its popular online adaptor starting in June. The upgraded PS2 will continue to sell for $199.

The upgraded machine will also offer the ability to play re-writable DVDs and will offer progressive scan technology, which will improve the visual quality of movies watched on the console. The machine will also be quieter than current models.

Sony also moved to blend the PS2's multimedia functions with its gameplay ability, introducing the EyeToy, a device that will let players digitally insert images of themselves into games.

"We need to depart from the status quo," said Kaz Hirai, president and COO of Sony Computer Entertainment America. "Leadership requires new thinking. ... Look for us for finding the right path to entertainment convergence."

Essentially, the EyeToy is the first cousin of a Webcam, which plugs into one of the PS2's USB ports. Your physical actions are then reflected in the game world. For instance, when playing a fighting game, you might punch or kick in the air in your living room and see your opponent take it on the chin in the game.

The EyeToy will likely appeal more to children than hardcore gamers, but that's part of Sony's plan.

"This is a piece of Sony's larger strategy to move down the age curve and make the PS2 a key part of kids' lives, not just older players' lives," said John Taylor, managing director and analyst for Arcadia Investment Corp. "I think you're going to see music and other activities show up as a key part of PS2 catalog."

Games were another key part of Sony's presentation. Perhaps most importantly, the company announced the next installment of Take Two Interactive's "Grand Theft Auto" franchise will debut exclusively on the PS2. Also announced was the next in the "Gran Turismo" racing series, which has been Sony's most successful game line, with 32 million copies of the games sold. "Gran Turismo 4" will be the first game in the series to be playable online.

Sony is far and away the industry's console sales leader, with more than 16.8 million in U.S. homes compared to 5 million Xboxes and 3.8 million GameCubes. That dominance is likely to continue growing – as some analysts feel 2004 could be the best year yet for video game machines.

"This year ought to be the peak year for hardware sales," said John Taylor, managing director and analyst for Arcadia Investment Corp.

2004 may not be quite as shiny, though, as Taylor predicts hardware sales will slip 20 percent industry-wide.

Sony's lead is so strong in the video game field that many analysts say the company didn't really need to cut prices at this time. They still expect the company to lower the console's retail price later this summer or prior to the holiday shopping season so Sony can meet its stated goal of selling 10.5 million PS2 units in North America this year.  

Reuters contributed to this report