Sony and Sharp have agreed to set up a joint venture to produce next-generation LCD panels, the Nikkan Kogyo Shimbun reported Monday. Under the agreement, Sony will invest 100 billion yen in Sharp Display Products in Sakai, Japan, including buying a 10 percent stake by March next year. The business daily said Sharp will cover the rest of the 380 billion yen for the joint venture.

The deal raises questions about the fate of Sony's six-year partnership in LCD production with Samsung Electronics.

In 2004, Samsung Electronics and Sony invested W2.1 trillion (US$1=W1,286) to create an LCD joint venture called S-LCD. Sony used the venture to meet more than 70 percent of its total LCD demand. The problem was that the more Sony became dependent on the joint venture, the more criticism it faced at home, with the joint venture criticized as benefiting only Samsung. Sony was accused of allowing rival Samsung to become a formidable foe in the global LCD TV market by buying key LCD panel components from the Korean company.

But the general view is that Sony will not be able unilaterally to sever ties with Samsung. After posting its first deficit in 14 years, Sony is in no position to sever existing business ties. Within the IT industry, Sony is seen as aiming to boost competition between Samsung and Sharp, thereby forcing them to lower LCD panel prices. Supporting this view, Sony is apparently also in talks with LG Display over the supply of LCD panels.