MacRumors.com

Reuters reports that Sony Corp is working on a cellphone/game player hybrid to better compete with Apple's iPod Touch and iPhone.

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 Sony Ericsson's mobile phones, the Nikkei said.

Sony appears to be considering a number of different moves to go head-to-head with Apple's iPod Touch and iPhone platform. An earlier report claims Sony was talking to major recording companies about providing downloadable music to the Playstation Portable (PSP). While Apple's devices aren't dedicated gaming machines, there is a notable overlap in audiences and the App Store has started attracting major gaming developers such as Capcom, id Software, and Square Enix.

The PSP has sold over 50 million units worldwide in the past 4 years, while Apple has already reached over 40 million units sold in the past 2 years.