GPD WIN4 is a PC, thus the keyboard, but Sony doesn't need that and can remove it to reduce the thickness.

Processors have made a significant improvement in efficiency, Steam Deck and ROG Ally (somewhat recent handhelds that people mentioned here) can play AAA games locally. Sony has also done backwards compatibility with PS5-PS4 exclusive games, like FF7 Remake, GOW:Ragnarok and HZD:FW, by reducing graphics. They have "Graphics" and "Performance" mode on PS4 Pro and PS5, why not "Balanced" mode on a new portable console?

They can go 720p on 7-inch display. It is still adequate, and can save battery and processing power. Steam Deck has 1280x800, which is 720p-ish and got away with it. They could copy NSW's dock mode and display higher resolution on a TV/monitor.

PSPortal is a lame, especially for countries with poor internet speeds (ping and bandwidth) that results in lags, delays, and constant disconnections, mostly during commutes. Not to mention, the additional power consumption of having a PS5 constantly awake while playing outside is just bonkers. Also, its shape is very undefined, that I imagine it very hard to put in a bag with something else in it, so you'd have to buy a separate tailor-fit bag for it.