Take three technologically distinguished but financially challenged Japanese makers of small/medium LCDs, add $2.6 billion worth of (mostly) Japanese government funds, and what do you get? One thing you will get is the world’s largest manufacturer of the small/medium LCDs used in smart phones and tablet PCs. The merger of Sony’s, Toshiba’s, and Hitachi’s LCD operations will produce a maker of small/medium displays bigger than Sharp or Samsung, and perhaps big enough to keep the Taiwanese wolves such as AUO from nipping too fiercely at its heels.

The three Japanese panel makers have all been losing money on their small-panel operations, but the operations are expected to be in the black in the current fiscal year (which ends March 31, 2012). The money to support the merger will come from the The Innovation Network Corp. of Japan (INCJ), a 90-percent-government-owned fund established in 2009 to stimulate innovation in Japanese industry. This will be the INCJ’s largest investment so far, reported Reuter’s Mayumi Negishi yesterday.

In return for its US$2.6B (¥200B), INCJ will wind up with 70% of the new entity, which is to be called Japan Display. Sony, Toshiba, and Hitachi will own 10% each. The parties expect the merger to be completed by Spring 2012. In the fiscal year ending March 2012, the partners expect Japan Display to have revenues of ¥570B, which they hope to grow to ¥750B by the fiscal year ending March 2016.

The three partners together had 21.5% of the small/medium display market, more than Sharp (14.8%) or SMD (11.9%), according to DisplaySearch figures. Details of consolidation of the three operations, which use different technologies and have overlapping business, were not announced.

"The parent companies have found a most convenient buyer for their factories and staff," Yoshihisa Toyosaki, head of the consulting company Architect Grand Design, told Negishi. "The assets of the merged entity will be huge. Without restructuring, there is no way that this company will win against Sharp, or rivals from South Korea, Taiwan, and eventually China."

What will Japan Display be working on beyond their current product lines? Next-generation displays, of course, including AMOLEDs.

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