Hitachi and Casio Computer announced they will merge large parts of their mobile handset operations.
The new company which is expected to be established in April, will handle design and development of latest mobile phones and procurement of parts.
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Production of the handsets will be consigned to two group companies, Yamagata Casio and Tokai Tec.
Ownership of the company will fall 51% to Casio and 49% to Hitachi and it is expected to employ around 350 people.
The decision to merge operations comes at a time when sales of handsets in the Japan market are expanding, but development costs and times are increasing because of the greater complexity of modern mobile telephone handsets.
In the first half of the financial year, domestic mobile telephone shipments totalled 26.7 million units, according to figures from the Japan Electronics and Information Technology Industries Association (JEITA), a rise of 28% on the same period a year earlier.
The companies hope to benefit from Casio's strength in high-density surface mount and image processing technology and Hitachi's strength in high-speed communications and microprocessors with its Super H chip.
They hope to save money by developing phones on common platforms and through joint procurement and reduce development time.
Overseas markets will also be a focus of the venture. Both companies already manufacture CDMA (Code Division Multiple Access) handsets for KDDI's Au unit in Japan and see the opportunity for continued growth of the CDMA subscriber base overseas, particularly in China and the US.
Martyn Williams writes for IDG News Service