That doesn't remove the smartphone as competition, though.
What they need to do, and they are taking steps towards this, is follow the old adage, "if you can't beat them, join them".
They should have put far more effort into the Xperia, and made that the new PSP, officially. They can still release a non-smartphone version, but it should be the same hardware otherwise.
Playstation Suite and PSP phones should be their entire focus, not a side project.
I agree, that would have been optimal. Or, they could give up on convergence devices and blaze their own trail, as I suggested earlier. That might mean a renewed focus on consoles, as the console space has become less intense as the world has moved portable. Or maybe Sony can come up with something totally different -- perhaps hardware built in to their TVs that made their TVs a game machine/TV simultaneously, in one form factor.
I don't really know, I'm just throwing stuff out there off the top of my head. My real point is this: the race for convergence is so intensely competitive that it is not something one can do half heartedly. You cannot make a game machine, then throw extra stuff in there and call that your convergence device -- even if you do the "extra stuff" very well, as it seems Vita has done. It's not going to out-compete a very intelligent company like Google or Apple who is putting 100% of their effort in to this "convergence device" process. Sony has to also be in 100%, or they should get out and find oceans that are at least slightly less red.