Sony is considering developing a cellphone-game gear hybrid in a bid to better compete with Apple's iPod and iPhone, the Nikkei business daily said on Saturday.

TOKYO (Reuters) - Sony Corp is considering developing a cellphone-game gear hybrid in a bid to better compete with Apple Inc's highly popular iPod and iPhone, the Nikkei business daily said on Saturday.

The Japanese electronics and entertainment conglomerate launched its first Walkman three decades ago, dominating the portable music player market, but it has been running far behind the iPod and iPhone in recent years.

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 Ericsson is a cellphone joint venture between Sony and Sweden's Ericsson.

A growing number of game-makers including Capcom Co Ltd and Square Enix Holdings are now offering software for the iPod and iPhone to take advantage of the Apple products' popularity, posing a threat to Sony's PlayStation Portable and Nintendo Co Ltd's DS.

A Sony spokesman declined to comment on the report.

(Reporting by Kiyoshi Takenaka; Editing by Bill Tarrant)