Japanese electronic groups Toshiba and Fujitsu have announced their intention to merge their mobile phone businesses in October this year.
The move would create Japan's second-largest mobile phone provider.
The two firms said they would use their competitive advantage to develop next-generation smartphones with the aim of becoming Japan's biggest provider.
In a joint statement, the companies said that they aimed to sign a final merger contract at the end of July.
Fujitsu would hold a majority stake in the merged business, they added.
"By combining their mobile phone development know-how and technological strengths, Fujitsu and Toshiba intend on enhancing their handset development capabilities and at the same time improving business efficiency," the statement said.
In Japan, Toshiba provides its handsets through its sales partners KDDI, NTT Docomo and Softbank Mobile.
Fujitsu also sells its phones through NTT Docomo.
Yuichi Ishida, analyst at Mizuho Investors Securities, welcomed the deal, arguing that "Fujitsu is lacking smartphones and the industry needs consolidation".
The merger agreement is the latest in a series of consolidations in Japan's mobile phone market.