Samsung Electronics and Sony have agreed to a $2 billion expansion of a liquid crystal display (LCD) plant, seeking a greater share of booming flat-screen TV sales.
The companies already run a $2 billion joint venture, S-LCD Corp., in South Korea to produce the panels.
The expansion allows Samsung, the world's second-biggest maker of large-sized LCD last year, to use Sony's brand power to expand the market for larger television panels.
Analysts also have been expecting Sony, Japan's second-largest consumer electronics maker after Matsushita Electric Industrial, to invest in new production capacity to secure panels for its new line-up of Bravia brand LCD TVs, which have made big strides in grabbing market share in the United States and Japan.
Panel supply was a key reason behind Sony's rise to the top spot in LCD TVs in the fourth quarter of 2005.
"Samsung and Sony have seen lots of benefits by cooperating, creating the market together and enjoying higher margins in 40-inch TV panels," Lee Min-hee, an analyst at CJ Investment & Securities. "They want to do it again for the bigger-sized panels through the new deal."
The move comes after Taiwan's AU Optronics Corp., the third-biggest LCD maker, announced on Friday it would acquire smaller local rival Quanta Display Inc.
As the race of capacity expansion and competitions squeeze LCD makers' margins, analysts have forecast smaller players to join hands to survive.
S-LCD will build an "eighth-generation" LCD line that uses a motherglass size of approximately 2.2-by-2.5 metres, the companies said.
The new line will begin mass production in the autumn of 2007 and have a production capacity of 50,000 units per month.
Sony and Samsung formed the $2 billion joint venture in 2004 to make LCD panels for large TVs.
The joint venture formed in 2004 is based in Tangjeong, South Korea, and started mass production in April, cutting panels from "seventh-generation" motherglass measuring 1.87-by-2.2 metres.
Larger motherglass enables makers to produce more panels, boosting efficiency. For example, the planned eighth-generation motherglass yield eight 46-inch TV panels, compared with six produced from the seventh-generation glass.
Samsung and Sony are aiming to sign a definitive agreement by the end of June.
Demand for large LCD panels used in personal computers is expected to rise 50 percent over the next three years, while demand for LCD panels for TVs is projected to jump more than threefold, according to research firm DisplaySearch.
Shares in Samsung Electronics ended down 1.83 percent at 642,000 won, underperforming the wider market's 0.29 percent decline. Sony shares fell 1.23 percent to 5,630 yen, also lagging the Nikkei's 0.61 percent drop.
Shares in Samsung and bigger rival LG.Philips LCD Co. Ltd. fell on news of AU acquiring Quanta.