Two large manufacturers of liquid crystal displays (LCD), Toshiba and Sony, are in talks to combine their LCD operations into a new entity, according to Reuters.

The new entity would overtake Sharp as the largest maker of small and mid-sized LCD panels, which are commonly found in smartphones and tablet computers.

If created, the two companies may seek to sell off up to 80 percent of the new entity to Japanese government-backed investment fund Innovation Network Corp of Japan. Initially, the fund is reported to already be in discussions to invest about 100 billion yen ($1.24 billion).

Sources from Nikkei Business Daily stated that the new entity may focus on mass-producing OEL (organic electroluminescence) panels, which offer higher resolutions than LCD and require lower energy consumption, Reuters reports.

Both companies want to reach a basic agreement this month to form the new entity later this year.

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