Reuters is reporting that Sony Ericsson is planning to develop a cellphone game gear hybrid in a bid to better compete with Apple’s highly popular iPod and iPhone. Apple’s devices have taken the portable gaming market by storm since last year. Though both Sony and Nintendo have maintained that increase in iPhone sales has not affected them negatively. But it is clearly evident that both the companies are worried by sudden rise of iPhone and iPod touch in portable gaming market.

Reports are that Sony plans to set up a project team as early as July to develop the new device that will bring functionality for PSP to a cellphone. If Sony were still in planning stage then it would at least take another year to bring the device to the market. Sony is already late by a year and adding another year would only make it that much difficult for the Sony to break iPhone’s hold on mobile phone gaming market.