Japan’s Sony is planning to develop a mobile device based on its popular PlayStation platform that will combine mobile phone and portable gaming functionality, reports Reuters, citing Japan’s Nikkei business daily. The report notes that Sony plans to set up a project team as early as July to develop a new product that combines functions of its portable game player and mobile phones made by Sony Ericsson, its handset joint-venture with Sweden’s Ericsson. The development is seen as a way of better competing with Apple’s iPod and iPhone, which is deemed to be encroaching on the gaming space traditionally dominated by the likes of Sony’s PlayStation Portable (PSP) and Nintendo’s DS.

Sony hinted at greater integration between its mobile and gaming units last month via the launch of a new Sony Ericsson handset called the Aino. The device uses a system called Remote Play, initially developed for the PSP, that enables users to control and access media content on PlayStation3 via the phone. While greater co-operation between a Sony product and a Sony Ericsson phone was well received by analysts, ongoing developments in this area could cast further doubt over the future of the struggling handset venture with rumours suggesting that Sony could soon buy-out Ericsson. According to the latest Gartner figures, Sony Ericsson slipped to fifth place in terms of global phone shipments in 1Q09, as its market share declined to 5.4 percent compared to 7.5 percent in the year-earlier quarter.