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Forget 'PSP;' How about 'PSPP?'

Monday, 11 Jun 2007 | 1:44 PM ET

Fresh back from a week off at Disneyland with the family, I'm raring to go. And I noticed something as we cruised around the park. Cell phones were ubiquitous. People using them standing online. People using them riding rides! Kids. Adults. Everyone.

AP

Not so prevalent, but still there, were portable gaming devices. Yes, if you can believe it, kids wandering around the park, or sitting on a bench, or waiting on line for a ride, playing PSPs and Nintendo DSs. Amazing. As if there weren't already sensory overload at Disneyland, these kids (and they indeed were MOSTLY kids) were still playing handheld game-players.

And that's where the news over the weekend from Sony becomes so intriguing, especially as Apple Inc. kicks off its Worldwide Developers' Conference in San Francisco today. Everyone wants news on the new iPhone, but they'll get another preview of the upcoming Leopard operating release instead. (Follow the conference with our live minute-by-minute coverage.)

The news from Sony, first reported in the mainstream press by the New York Post this weekend (though bloggers were speculating about this last week) is the company's patent filing to add cell phone capabilities to a new line of Playstation Portables. Further, the Post reported that Sony has signed a deal with BT Mobile in Europe to offer video chat and messaging to the PSP.

This could potentially be a serious game-changer and give Apple some competition where it wasn't counting on it. For Sony, it's a stroke of genius. Any time you can add "communication" and "connectivity" to a device, it becomes a game-changer. And the development comes none too soon. PSP has run a distant second to Nintendo's DS portable device. The former has sold about 25 million units; the latter over 40 million. Sony needs to inject something very cool into a new line of device that can eclipse Nintendo. A cell phone alone won't do the trick, but a hybrid device that acts as a high-end gaming system; a multimedia music and video download device; as well as a cell phone all wrapped up in a tricked-out package? That's got some possibilities.

"If you look at the Playstation as a platform, it is the strongest in all of video games; if you look at Sony-Ericsson, it's gained a lot of marketshare in Europe because of a few of the unique features it can provide. If you bring both of those together, I think Sony-Ericsson would have a recipe for an excellent device, if it were to come to market, and able to provide games at a level we haven't seen yet," says mobile analyst Evan Wilson at Pacific Crest Securities.

Sony's news comes at an interesting time for the wireless sector. The buzz surrounding Apple's iPhone is bordering on deafening; Research in Motion and its BlackBerry continues to surge; Motorola is grasping for some kind of strategy that will work; Nokia seems to be regaining its momentum; and Palm just received a $300 million cash infusion from Elevation Partners, the same private equity/venture capital firm that put about the same amount down to buy game developers Bioware and Pandemic. Hmmmmm. That's interesting. Even though the two companies don't have mobile technology (so far as we know) and neither is known for more casual, cell-phone games, Sony's news could propel Palm into a new area of super-smart, game-playing, music-playing, video-playing devices.

Sony executives are downplaying the patent filing today leading some analysts to believe that nothing is imminent. Still, the industry is expecting some kind of details from Sony at next month's E3 trade show in Southern California.

"Sony has clear strength in the video-gaming market and that's clearly something Apple does not have. If you were able to combine their gaming functionality with a phone, it would give them something Apple doesn't have and no one else has at this point," says Pacific Crest's Wilson.

If there's a simple message, it's that the mobile market isn't sitting still, waiting for Apple to gobble up millions of consumers. The deeper message is what Apple will do to counter a move by Sony, and possibly Palm, to create new devices that combine the best of all worlds.

The reason this is a bigger issue for Apple than you might expect is because of the company's reluctance to allow third-party software developers to create programs and titles for its platform. The company has dabbled in some rudimentary casual games -- some better than others -- but the library of games comes no where near what an established gaming leader like Sony can bring to the party. Apple's bet the farm on music and video. And there's no indication that consumers want a phone and gaming device. But why wouldn't they?

A good question for Sony, Palm and indeed all mobile sector investors; but maybe a disturbing question for Apple, if Sony ever gets a product like this out the door.

Questions? Comments? TechCheck@cnbc.com

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