Signs point to Sony using a new memory storage device created through a joint venture with SanDisk for their upcoming PSP2/Go!
Speculation is wild about Sony's as of yet unannounced PSP2 or PSP Go! as it's being called, but most industry heads agree that the system will have a minimal focus on UMD if at all. Rumors have pointed to the system using internal flash memory storage for games, but a closer examination of a recent SanDisk/Sony partnership has led to a more likely possibility.
The press release from this year's CES focuses on tinier, faster, more versatile Memory Stick formats:
"[...]Sony and SanDisk "have co-developed two expanded Memory Stick formats." Think something like the Memory Stick HG-Micro, with a 60MB/s transfer rate, approximately 40MB/s faster than original Memory Stick Duo."
The external memory idea makes a lot of sense in light of these new products, as the internal memory would significantly drive up the base cost of the new PSP. Allowing the customer to purchase their own memory would keep the price relative to their needs. The new PSP launch would also create a strong sales boost for the new Memory Stick. Whether or not the new PSP will support previous Memory Stick formats remains to be seen.
Rumors suggest that Sony will announce or unveil the new PSP this June at E3.