In a new blog post, the Atari VCS team explains that the delay is down to a decision to swap out older AMD hardware. The console, which was originally built around 4K capability, 60fps and HDR support, was built off AMD's Bristol Ridge APU, which launched back in 2017. It wasn't the most powerful gaming APU then, with Anandtech finding it was barely capable of hitting 55fps in GTA 5.
On low settings, at 720p.
So for a console that wants to run modern and classic games, the upgrade makes a lot of sense. The new APU chip from AMD will be a dual-core Zen offering with onboard Vega graphics. They also add that the product is currently unannounced, rather than being one of the existing 14nm AMD APUs currently on the market (like the Ryzen 3 2200U, which would fit the bill for this).
The APU upgrade will have a fairly substantial impact on developers. The existing Ryzen APUs already had a significant amount of headroom compared to the older Bristol Ridge line: the 2200G was at least capable of holding above 30fps at 900p in more modern games, in some instances getting nearly double the performance of the older chip. A newer APU again would get further performance bumps still.