NEC, Matsushita in 3G mobile tie-up

By CNN's Kristie Lu Stout and reports

TOKYO, Japan -- Japan's leading mobile handset makers Matsushita Communication and NEC plan to jointly develop next-generation mobile software and devices.

The two companies will make a formal announcement on the tie-up Tuesday afternoon. When contacted by CNN, both Matsushita and NEC declined to give further details about the alliance.

The mobile tie-up is the first major third generation (3G) pact between two Japanese handset makers in Japan, the second-largest telecommunications market in the world.

Next-generation alliance

The Nihon Keizai Shimbun reported that Matsushita, which had a 26 percent share of Japan's handset market last year, and NEC, which has 23 percent, would join hands to develop software used in 3G phones to video conferencing.

In addition, they will jointly develop new PDA devices to support fast data communications.

The business daily also said both companies would supply each other with mobile phones for sale under their own brands on an original equipment manufacturing basis.

Matsushita Communications spokesperson Shigeo Kusakabe declined to confirm the Nihon Keizai Shimbun report. Instead, he told CNN that Tuesday's announcement would reveal "the type of alliance that will be held by the two companies."

Analysts say the alliance is aimed at strengthening the market position of the two consumer electronic giants.

Matsushita Communication, 56.3 percent owned by consumer electronics giant Matsushita Electronic Industrial, and NEC are the only companies with working 3G mobiles in Japan.

Both companies manufactured the handsets currently being used in NTT DoCoMo's trial 3G service.

Sharing the risk

An alliance with Matsushita Communication would bring much-needed video technology expertise to NEC, industry watchers say.

"Video conferencing using 3G is something NEC needs help with," says ING Barings consumer electronics analyst Richard Chu. "The have regular application software they are good at, but they are not great at video streaming."

The pact would give help shore up Matsushita's loss-making mobile business after a series of embarrassing software glitches.

"They can split the costs more," said ING Barings' Chu. "It makes sense to divide the cost and share the risk."

Weighed down by handset recalls and a slump in sales, Matsushita Communication posted its first ever quarterly loss as a listed company in the three months to June, with a group operating loss of $50 million.

After soaring as high as 8.5 percent in morning trade, shares in Matsushita Communication closed gained 0.75 percent to close at 4,030 yen.

NEC closed down 2.13 percent at 1,605 yen.