Sony Ericsson has struggled to gain traction in a fiercely competitive smartphone market dominated by the likes of Apple and Samsung.
The business will now become part of Sony’s consumer division.
Analysts expect much tighter integration of the user experience between Sony’s smartphones and its other consumer goods, such as flatscreen TVs and its PlayStation franchise.
Rivals including Panasonic have launched handsets that can double as TV remote controls and which can seamlessly share content with other devices.
Welsh-born Sony chairman Sir Howard Stringer said: “It’s the beginning of something which I think is quite magical. We can more rapidly and more widely offer consumers smartphones, laptops, tablets and televisions that seamlessly connect with one another and open up new worlds of online entertainment.”
The deal will give Sony ownership of certain handset patents held by Sweden-based Ericsson and will enable it to cut costs in the mobile business, with Stringer pointing to savings in operations, R&D and marketing.
The takeover of Sony Ericsson by the Japanese group had long been mooted but Stringer last year distanced himself from such a move.
Ericsson chief executive Hans Vestberg said the company will use the cash to strengthen its balance sheet and has no plans to pay it out to shareholders.