( Reuters ) - Japanese electronics conglomerate Toshiba Corp (6502.T) said it will buy large liquid crystal displays from Sharp Corp (6753.T) as part of an alliance likely to help spark a realignment of the flat panel TV industry.
Under the pact, Toshiba will procure liquid crystal display (LCD) panels from a 380 billion yen ($3.4 billion) factory being built by Sharp in western Japan, and then use them in LCD TVs larger than 32 inches to be sold under its own brand.
Sharp, in turn, will buy semiconductors from Toshiba for use in its own LCD TVs.
The deal underscores the scramble by electronics makers to position themselves to meet growing demand for large LCD TVs able to produce high-definition pictures at ever cheaper prices.
"It would be difficult for one company to do everything on its own. It's necessary to join forces with others that have complementary strengths," Toshiba President Atsutoshi Nishida told a news conference.
The pact could also help redraw lines in the industry.
Nishida told a news conference that Toshiba may sell its 15 percent stake in IPS Alpha Technology, an LCD joint venture with Hitachi Ltd (6501.T) and Matsushita Electric Industrial Co (6752.T), the world's top maker of plasma TVs.
That would pave the way for Matsushita to take control of the venture and invest aggressively in LCD production to address a weak point in its product line-up. A source told Reuters earlier this week that it was considering such a move.
Matsushita has invested most aggressively on plasma in the belief that it was the most cost competitive technology for big TVs above 40 inches, but plasma's dominance in that segment of the market has started to give way to bigger and cheaper LCD TVs.
Global LCD TV sales will likely grow 85 percent to $91 billion by 2010, while rival plasma TV demand is expected to shrink 15 percent to $15.8 billion over the same period, according to research firm DisplaySearch.
Toshiba, which currently procures panels from IPS Alpha and LG.Philips LCD Co (034220.KS), said it aimed to meet 40 percent of its demand for LCD modules in the business year starting April 2010 with supplies from Sharp.
At the same time, Sharp hopes to satisfy 50 percent of its total demand for system LSI semiconductors from Toshiba.
Nishida said he hoped to triple business between Toshiba and Sharp from the current level of around 70-80 billion yen.
The deal will give Sharp a large customer for its factory, which is expected to be the world's largest LCD plant when it starts operation by March 2010, while offering Toshiba a steady source of demand for its image-processing chips.
Toshiba's decision to consider selling its stake in IPS Alpha underscores a trend among Japan's sprawling electronics conglomerates to shed unprofitable or non-core assets.
Hitachi, for example, is talking to U.S. private equity firm Silver Lake about the possibility of selling it a stake in its loss-making hard drive business.
"It's not on the scale of Hitachi but this deal shows that Toshiba is reorganizing its businesses, and that's positive," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.
"Toshiba can just procure LCD panels externally. It doesn't need to be investing in production."
Ahead of the announcement, shares of Sharp rose 2.9 percent to 1,956 yen, while shares of Toshiba gained 2.5 percent to 837 yen and the benchmark Nikkei average (.N225) rose 1.5 percent.