With Sony seemingly in full throttle in the development of its rumored update to the PlayStation 4, the PS4 Neo, Microsoft seems to be well on its way in coming up with a challenger to Sony's champion. As the gaming industry heads towards E3 2016 next month, console fans are looking forward to what Microsoft would unveil in the all-important world gaming event.

When rumors of the PS4 Neo first began to emerge, the rumor mill was quick to speculate that Microsoft might be coming up with a console to correspond to Sony's upcoming PS4 update. Popularly dubbed the Xbox 1.5, the alleged update to the Xbox One was said to be a worthy rival to Sony's upcoming device.

However, these speculations were quickly debunked by none other than Phil Spencer, the head of Microsoft's Xbox team himself. According to Spencer, if Microsoft would update the Xbox One, it would not involve incremental upgrade. Rather, it would be a full-on release of a brand new console that would feature next-generation technology.

"I'm not a big fan of Xbox One and a half. If we are going to move forward, I want to move forward in big numbers,"he said. "For us, our box is doing well. It performs, it's reliable, the servers are doing well. If we're going to go forward with anything, like I said, I want it to be a really substantial change for people - an upgrade," Spencer said.

Thus, with the Xbox 1.5 rumors fully debunked, fans of Microsoft were a bit taken aback. After all, with Sony developing an update to its already dominating PS4, Microsoft would be in a really bad spot if it chooses to not even challenge Sony's upcoming console.

However, Microsoft did announce that it would be making a pretty important announcement at E3 next month. Thus, console fans are now speculating about what the tech giant's announcement would be.

Of course, among the most prominent speculations which have emerged so far involve the release of an Xbox One Slim, a more portable, streamlined version of the Xbox One that channels Sony during the PlayStation 2 era. As could be remembered from that time, the PS2 Slim was considered a success by the Japanese gaming giant as well.

However, Microsoft would be suffering from having a console that is extremely underpowered compared to Sony's upcoming PS4 Neo. With the PS4 Neo allegedly being designed with 4K gaming in mind, Microsoft would be making a grave error by simply slimming down its current console.

Thus, in order to be fully competitive, Microsoft might actually announce the Xbox Two in E3 2016. Though this has not been confirmed at all, it does make a lot of sense. By announcing the Xbox Two, Microsoft would not only catch up to the PS4 Neo, it would most probably exceed it as well. Doing so puts Microsoft fully ahead of the curve, and considering the discrepancy between the sales of the PS4 and the Xbox One, Microsoft does need to do something drastic in order to best its rival.

This year's E3 would be an interesting one, indeed.

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