After on and off reports of ongoing talks on a merger, Japanese electronics giants, Fujitsu and Toshiba have finally declared of plans to unite their mobile businesses in October this year. The new company would also be the second-largest cellphone manufacturer in Japan, with a combined share of 18.7% domestic share after Sharp, which currently holds 26.1% share. Fujitsu currently ranks third among Japanese handset makers and reportedly shipped over five million handsets in 2009.

This news comes a few days after the combined business of rivals Casio, Hitachi and NEC, christened as NEC Casio Mobile after the declaration last September, started its operations this month. This trend is being seen as Japan’s domestic market is rapidly shrinking and companies have shifted their focus to consolidation. This new merger would bring the number of handset manufacturing groups down to six from the former ten in 2007.

According to the declaration, Fujitsu will be the major stakeholder in this joint venture, whose name is yet to be declared. The Nikkei business daily puts this figure at 70-80 percent, which one analyst observed could put pressure on Fujitsu’s initial profits but would prove to be beneficial in the long run. The two companies are to sign a final contract at the end of July.

“For Fujitsu’s mobile phone business… taking in a business with about a 10 billion yen loss, even though the loss should shrink this year, would be negative from the earnings point of view,” Mizuho Investors Securities analyst Yuichi Ishida said. “But this would be a plus for both Fujitsu and the whole industry, because Fujitsu is lacking smartphones and the industry needs consolidation,” he added

With this move, Fujitsu and Toshiba are looking forward to “develop highly competitive, next- generation handsets for the expanding smart phone market. By combining their mobile phone development know-how and technological strengths, Fujitsu and Toshiba intend on enhancing their handset development capabilities and at the same time improving business efficiency,” the two companies said. It is also expected that the customer base for both companies will expand as Fujitsu supplies to Japan’s top mobile phone carrier, NTT DoCoMo Inc, while Toshiba is the handset supplier for KDDI Corp, the second-leading carrier.

The only con of the smart move is the profound lack of an international presence. Japanese makers, the first to put cameras and internet browsing on mobile phones, only have about a 3 per cent combined global market share, according to research firm Gartner. “What makes me nervous is that we have a Japanese company merging with a Japanese company… It’s all well and good but if you want to grow, you have to get off the island,” Morgan said. And historically, he added, Japanese companies have not had good international success when they try to move their business outside the country. They would do well to follow Kyocera’s example, which took its low-end handset business into the United States and Latin America with some success, Morgan said. “That’s the best of the best in terms of going international and gaining foothold.”