Sony and Sharp, two of Japan's fiercest consumer electronic rivals, are to join forces in a £2 billion factory producing liquid crystal panels.

Analysts said that the move could signal a major realignment of the country's high-tech industry as it battles to contend with aggressive, lower-priced competition from China, Korea and Taiwan.

The deal could also represent the first serious step towards closer links between Sony, Sharp and Toshiba. Each company now has a large joint venture with both the others, with televisions the focal point of the alliances.

Sony will invest £500 million in the new plant, which will be built near the western Japanese city of Sakai, with the remainder to be met by Sharp.

An analyst at Macquarie, the merchant bank, described the Sony-Sharp joint venture as the latest in a trend of “mutually beneficial arrangements within the trio of Sony, Sharp and Toshiba”. He added that future deals could see Sharp and Sony incorporating the Cell chip - a “supercomputer” semiconductor developed by Toshiba - in new TVs.

The deal comes as Sony, under the leadership of Sir Howard Stringer, has recovered its position as the world's largest seller of televisions - a position it lost in the early phases of the worldwide shift to flat-panel TVs.

Sony's existing arrangements for panel supply include a joint venture with its Korean arch-rival, Samsung. Sony management has made little secret of its plans to diversify its sources of panel supply as momentum builds behind its Bravia TVs.

Sony has also shown a desire to regain a degree of control over production. By becoming the 33percent investor in a state-of-the-art panel factory, analysts said that Sony was effectively guaranteeing a high-quality supply that it might have struggled to secure.

Ryoji Chubachi, president of Sony, said: “This agreement is a very big step for Sony as we strive to become the world's No1 TV maker.” He said that global demand for LCD televisions is expected to reach 100million units in the year to April 1, 2009. Sony is aiming for 15 to 20percent of the market, or 15 million to 20 million units, up from its sales forecast for the current year of 10million.

The deal comes as Sharp - an acknowledged leader in the production of high-quality LCD screens - has itself shifted focus. The company has increasingly recognised its difficulties in competing directly with the world's major consumer electronics brands, and is now emphasising its role as a provider of the highest-quality panels to the industry. Sony already uses Sharp LCD panels in its PlayStation Portable handheld games machines.

Mikio Katayama, president of Sharp, said: “We have long wanted partners in the LCD business, and by forming a partnership with Sony we can improve the quality and cost-competitiveness of our products as well as aim to boost the technology for related equipment and devices.”

Standard and Poor's, the ratings agency, raised its outlook on Sony this week to “stable” from “negative”, citing improved profits at its core electronics unit and gradual recovery in its struggling PlayStation 3 video game operations.

Shares in Sony closed up 1.2percent at 5,200 yen, while Sharp was flat at 2,100 yen.

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