Japanese handset vendors NEC, Hitachi and Casio are reportedly mulling merging their mobile operations in a bid to take on the domestic market-leader, Sharp, reports Dow Jones Newswires. According to people familiar with the matter, the merger talks are designed to boost profitability in a handset market that has been hit by the country’s mobile operators (Docomo, KDDI and Softbank) reigning in spending on handset subsidies. Local newspaper Yomiuri Shimbun had earlier reported that the three companies had started discussions to merge their handset businesses by as early as April 2010. Analysts say a consolidation of the three players could help them share development costs and ride out the tough local market conditions, as well as giving them greater ability to expand overseas into markets such as China.

Shares in all three firms rose in response to the market speculation. According to Dow Jones Newswires, shares in Casio, which is best known for its electronic watches, closed 8.5 percent higher at JPY819 (US$8.76), while NEC rose 0.6 percent to close at JPY333 and Hitachi rose 1.6 percent at JPY327. Mizuho Investors Securities analyst Nobuo Kurahashi said that, since Casio is the smallest of the three firms involved, any earnings boost would be comparatively bigger than for the others. According to data from research firm BCN, cited by Dow Jones Newswires, a combined NEC-Hitachi-Casio would have a share in the Japanese handset market of about 20.2 percent. That would still leave it behind market-leader Sharp, which had a 21.8 percent share at the end of March, but ahead of Panasonic on 16.8 percent.