kotaku-phoneSony Ericsson is reportedly working on a phone that combines PlayStation games with a cell phone. It’s not the first time that such rumors have floated, but Nikkei, a big Japanese business publication, reported that Sony has a team working on the product now.

The iPhone and its game capabilities have threatened to make portable game devices obsolete. So incorporating phone features into a game device may be the only way Sony could reclaim leadership in the portable gadgets market.

It’s not just Apple’s iPhone and iPod and Nintendo’s DS that have bypassed Sony. Microsoft is launching its Zune HD this fall, and rumors persist that it will eventually add phone-like capabilities as well, since it has an Nvidia Tegra processor capable of a variety of phone functions. The PSP has sold more than 50 million units. But the iPhone and iPod Touch are on their way to surpassing the PSP, and the DS has sold more than 100 million units. Nintendo refreshed the DS with the DSi in April.

Sony will be releasing its own PSP Go product, a revision of the PlayStation Portable, in October. But a phone would likely be a more direct challenger to the iPhone. Still, the odds are likely that Sony won’t launch a hybrid game player and phone for some time. That’s because the Nikkei is reporting the formation of this team as a recent development and it will take some time to design the game phone and get it to market. If the rumor isn’t true, I’d be disappointed. I think Sony needs a multi-pronged product strategy to deal with the threats that the DSi and the iPhone represent.

[photo credit: Kotaku]