Technology giants Toshiba and Fujitsu said Thursday they will merge their mobile phone businesses in Japan to create the nation's second-largest cell phone maker.

The two firms have decided to join hands to strengthen their handset development, particularly in terms of making smartphones.

Toshiba will transfer its mobile phone business to a new company set for launch in October, in which Fujitsu will acquire the majority of shares, effectively taking control of the Toshiba unit.

"Our handset business is profitable and strong as it is, but we can't assume it will remain so," said Fujitsu spokesman Etsuro Yamada.

"Competition is also coming from the outside," he said in a reference to the popularity of the iPhone in Japan.

"For us, this (merger) agreement is one of our restructuring steps," said Toshiba spokesman Keisuke Ohmori.

Japanese cell phone makers are realigning their partnerships, as they look to shore up their market share in the saturated and competitive domestic mobile phone sector while trying to expand overseas.

Japanese makers are also under pressure to streamline and consolidate in the face of competition from newcomers such as the iPhone, Research in Motion Ltd's (RIMM) Blackberry and Taiwanese handset maker HTC Corp.

The step would create the nation's number-two mobile maker with a 18.7 percent share of the domestic market after the industry leader Sharp, which has a 26.2 percent share.

Fujitsu makes handsets for the nation's top mobile carrier, NTT DoCoMo.

Toshiba mainly supplies to the second-leading carrier KDDI, although it releases its products to NTT DoCoMo and Softbank.

Fujitsu and Toshiba plan to sign a final contract at the end of July.


- Dow Jones Newswires contributed to this story -