UPDATE 4-Fujitsu, Toshiba in mobile merger talks -sources

* Would create Japan’s No. 2 cell phone firm after Sharp

* Deal would help cut costs, aid overseas expansion

* Fujitsu, Toshiba say nothing decided

* More consolidation likely in domestic market – analysts

* Fujitsu shares rise 0.9 pct, Toshiba shares up 2.2 pct
(Adds comments, background)

By Reiji Murai and Kentaro Hamada

TOKYO, June 11 (BestGrowthStock) – Fujitsu Ltd (6702.T: ) and Toshiba
Corp (6502.T: ) are in talks to merge their mobile phone
businesses, two sources said, in a move that would create
Japan’s No. 2 cellphone maker in a rapidly shrinking market.

The deal would allow the two electronics makers to share the
heavy cost of developing phones in the technologically advanced
market and analysts expect more consolidation.

“The Japanese market is not all that big, but there are
still far too many manufacturers,” said Mitsushige Akino, chief
fund manager at Ichiyoshi Investment Management. “Consolidation
will continue, even if at a slow pace.”

If the two makers combine their operations, the Japanese
handset industry would have six groups, down from 10 three years
ago. NEC Corp (6701.T: ), Hitachi Ltd (6501.T: ) and Casio Computer
(6952.T: ) agreed to combine their mobile phone businesses last
year and the venture started operations this month.

Japanese makers, the first to put cameras and Internet
browsing on mobile phones, only have about a 3 percent combined
global market share, according to research firm Gartner. The
increasing popularity of Apple’s (AAPL.O: ) iPhone in their home
turf is also driving consolidation.


Graphic on the Japanese market http://r.reuters.com/nuw49k

Graphic on the global market http://r.reuters.com/vax49k


Japanese firms are teaming up to expand in the global
market, where they are outmatched by bigger and more efficient
rivals such as Nokia (NOK1V.HE: ) and Samsung Electronics
(005930.KS: ). Smartphone makers including Apple and Research In
Motion (RIM.TO: ) are also growing rapidly.

Most local makers ship small volumes exclusively to domestic
operators, in contrast to Nokia, the world’s largest handset
maker, which mass produces models and supplies it to vendors

Fujitsu and Toshiba will likely set up a joint venture and
Fujitsu is expected to hold a majority stake in it, sources
familiar with the discussions said. They spoke on condition of
anonymity as the deal is not yet official.

Fujitsu spokesman Etsuro Yamada said nothing had been
decided. He declined to say if the firms were in deal talks.

Toshiba, which has been hunting for ways to turn around its
loss-making cellphone operations, said in a statement that
nothing had been decided. Spokesman Keisuke Ohmori declined to
comment further.

Deutsche Securities expects Toshiba and Fujitsu’s cellphone
sales to total more than 300 billion yen in the year to March

Cellphone sales in Japan shrank almost 40 percent in the
last two years, driving mobile phone makers to target overseas
markets and also to share development costs estimated as much as
10 billion yen ($110 million) per new handset.

“It’s a good thing they are joining forces,” said Akino. “In
fact it would be better if they merged completely — this is
just a partial consolidation.”


The merged operations would trail Sharp Corp (6753.T: ) in
Japan and be ahead of Panasonic Corp (6752.T: ) and NEC Casio.

Japanese makers are consolidating, with Kyocera Corp
(6971.T: ) buying Sanyo Electric’s (6764.T: ) cellphone operations
and Mitsubishi Electric (6503.T: ) withdrawing from the business
in 2008, but they are still tiny outside of their home market.

Nokia had a 35 percent share in the global cellphone market
in January-March, followed by Samsung with 20.6 percent.

MM Research Institute analyst Hideaki Yokota said it would
not be easy for Japanese makers to take on global rivals but
they may have a chance depending on which markets they aim for.

“Samsung and the U.S. and European makers are already
established in China. On the other hand, India and Africa brands
are not so established, so there would be room for change.”

Analysts and market participants say Japanese makers’
technological advantage could help as demand for advanced phones
increases. The launch of next generation LTE networks globally
could also support their sales overseas.

Toshiba has been selling smartphones based on Microsoft’s
(MSFT.O: ) Windows in Europe.

Fujitsu manufactures handsets for Japan’s biggest mobile
phone operator, NTT DoCoMo Inc (9437.T: ), while Toshiba mainly
supplies cell phones to KDDI Corp (9433.T: ), Japan’s No.2
telecoms firm.

Fujitsu shares gained 0.9 percent, while Toshiba rose 2.2
percent. The broader market rose 1.7 percent.

Stock Investing

(Additional reporting by Sachi Izumi, Isabel Reynolds and
Nathan Layne in Tokyo and Shailesh Kuber in Bangalore; Editing
by Anshuman Daga)

UPDATE 4-Fujitsu, Toshiba in mobile merger talks -sources