Japanese handset vendors Fujitsu and Toshiba are in talks to merge their mobile phone businesses to challenge local market-leader Sharp, reports Dow Jones Newswires citing local media sources. According to data from the Tokyo-based research firm, MM Research Institute, a merger of the mobile phone operations of third-ranked Fujitsu and eighth-ranked Toshiba would give the combined entity a market share in Japan of about 18.7 percent. This would put it in second place behind Sharp, which had a 26.2 percent share of the Japanese market in the year ended March 2010, but ahead of Panasonic Mobile on 15.1 percent. However, on a global basis, the merged entity would have an estimated market share of less than 1 percent.

The Nikkei reported this morning that Fujitsu and Toshiba would likely set up a joint venture later this year to combine their handset operations, with Fujitsu expected to hold the majority stake. Commenting on local media reports, Toshiba said in a press release that it was “working on various internal improvements in the mobile phone business through reform steps, but nothing had been decided as reported in the media.” Toshiba denied that any firm decisions had been made. There has been a series of mergers in the Japanese handset space in recent years as the overcrowded market has sought to consolidate to cope with falling sales. In 2008, Kyocera bought Sanyo’s mobile phone operations, while earlier this month, NEC, Hitachi and Casio Computer also joined forces to create a single mobile phone company. Sales of new handsets in Japan fell 4 percent to 34.44 million units in the fiscal year ended March 2010, according to MM Research.