Fujitsu and Toshiba merge their mobile units in Japan

Japan's Fujitsu and Toshiba presented on Thursday its plans to merge its mobile phone business in October with the aim of creating the second largest manufacturer of this sector in Japan, a move that dramatically strengthens the market.

The merger will help the two electronics companies to share development costs, but the combined entity is likely poses no immediate threat to global leaders like Nokia and Samsung.

Analysts expect more consolidation in the industry in Japan, where too many mobile phone makers are competing for a declining market.

Following the planned merger, there will be six groups that make mobile phones in Japan, up from 10 just three years ago.

Fujitsu will have a majority stake in the company of between 70-80 percent, the Nikkei business daily, which one analyst said could add pressure to short-term profits but will benefit in the long run.

"For the mobile phone unit (...) Fujitsu enter into a business with approximately 10,000 million yen in losses, although the loss should be reduced this year will be negative from the standpoint of earnings," said analyst Mizuho Investors Securities Yuichi Ishida.

"But this would be a plus for both Fujitsu and the entire industry, because Fujitsu has no smart phones and the industry needs consolidation," he added.

Deutsche Securities has previously said it expected sales of mobile phones from Toshiba and Fujitsu amounted to more than 300,000 billion yen in the year to March 2011.

The merged company will be second in Japan after Sharp.

A different alliance that combines the operations of NEC, Hitachi and Casio Computer also began operating this month.

Thursday's announcement is no surprise then that two sources said last week that the two companies were negotiating to merge its mobile phone business.

Smartphones and foreign market

Fujitsu has maintained its mobile business benefits focusing on its strength in water-resistant devices, mobile phones with fingerprint readers and mobile homes.

But it offers a growing segment of mobile smartphones and is betting on Toshiba's expertise in this field.

Smart phones like Apple's iPhone and Research In Motion BlackBerry blend the personal computer and mobile phone and are gaining popularity around the world.

Toshiba has been selling smartphones based on Microsoft Windows in Japan, Europe and parts of Asia.

Despite its dominance in the local market, Japanese manufacturers have only a combined share of about 3 percent globally, where they are overtaken by larger, more efficient rivals.