Consumers, investors, and analysts have been asking since 2007 why SCEA and Sony-Ericsson haven’t produced a Playstation branded smartphone to compete with Apple (NASDAQ: APPL). Now, according to a new report, that question will be answered.

It would be fair to say that the past seven years haven’t been quite as kind to Sony (NYSE: SNE) as the previous decade. Before 2005, Sony’s disparate divisions dominated several industries without working together. The portable music market was ruled by the Walkman and Discman line of devices, and Sony thrived despite the failure of the Minidisc format and other missteps. Sony Computer Entertainment controlled the home videogame console space throughout the late ’90s with the Playstation and then the early ’00s with the Playstation 2.

With the disappearance of the compact disc market, the rise of the Nintendo (PINK: NTDOY) Wii, and the arrival of the industry defining iPod from Apple Inc., though, Sony’s decline has been steady in those markets for going on five years. While changing technology and marketing missteps have been partially to blame for Sony’s fall, a huge part of the problem has been the lack of synergy between Sony’s many limbs. The lack of communication and common goals for Sony’s international offices and technology divisions has lain low many of the company’s products. SCEA’s portable gaming device, the Playstation Portable, has floundered in the face of competition from both Nintendo’s Nintendo DS and, more significantly, Apple’s iPhone. Ericsson, while a pioneer in the smartphone field, has also lost significant ground in that market to Apple.

According to Engadget, though, Sony and Ericsson’s partnership in the cellular phone market will finally leverage Sony’s history in the both the portable media player and videogame space to take on Apple, and they’ll be getting a little help from Google (NASDAQ: GOOG) as well. Sony Ericsson’s first Android-based phone will be a smartphone built specifically with gaming in mind, and branded with both Sony’s Playstation moniker and Sony Ericsson’s Xperia name. Engadget describes the device’s form factor as a cross between Sony’s PSPGo (a model of PSP that doesn’t support Sony’s proprietary physical media format, the UMD) and Samsung’s Captivate. It has a sliding widescreen interface, but rather than a full keyboard beneath the sliding screen, the Playstation phone will sport a button layout similar to the PSP’s, with symmetrical, eight-button cross configurations on each end as well as buttons on the left and right horizontal shoulders of the device. New to the control layout will be a trackpad that will double as both analog and touch controls on the device. The device will be between 3.7 and 4.1 inches long and will possibly include a 5 megapixel camera. Screen resolution is said to be at least at WVGA level and the CPU is believed to be 1GHz Snapdragon. Meanwhile, the system will be running the very latest version of Google’s operating system, Android 3.0, also knows as Gingerbread.

Word is that the new Playstation Xperia from Sony Ericsson could hit the market as soon as this October with software support in the form of popular Sony franchises like God of War and Little Big Planet alongside major game publisher support from companies like Activision Blizzard (NASDAQ: ATVI) with franchises like Call of Duty: Modern Warfare. Whether or not Sony will be able to recapture its portable media device and game market dominance with these foray into the smartphone market remains to be seen. If Sony Ericsson manages to get this phone to market in time for the holiday 2010 season, Sony shareholders, Ericsson shareholders, and countless investors deep in the tech market will have a whole lot to be happy about.

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