The alliance consolidates Japan's industry in plasma display -- large-screen televisions which offer state-of-the-art resolution -- by uniting Japan's top player in the sector Matsushita, maker of the Panasonic brand, with number-two Hitachi.

But Matsushita and Hitachi have slipped to third and fourth respectively in worldwide sales of plasma displays beneath global number-one Samsung and second-ranked LG Electronics, both from South Korea.

"We have price competition as well as competition against foreign rivals," Hitachi president Etsuhiko Shoyama told reporters. "We have reached a conclusion that it's better for us to cooperate in this field."

Matsushita president Kunio Nakamura said: "I'm sure our plasma display business will further expand in cooperation with Hitachi, which has advanced technology."

"Now we are in a wide-screen era," Nakamura said. "Plasma displays are the leading players in wide-screen displays. Our company regards PDP (plasma display panels) as our strategic business."

Global demand for plasma display television sets is expected to reach 2.7 million units for the year to March, Nakamura said, adding that demand would further rise to at least 10 million units for the year to March 2009.

"The two companies, both leaders in the plasma TV arena, have agreed to collaborate in a broad range of activities, including research and development, production, marketing and intellectual property," they said in a statement.

The deal between Hitachi Ltd. and Matsushita Electric Industrial Co. Ltd. "is aimed at further development of color PDP technologies and growth of the plasma TV market on a global scale," the statement said.

Analysts said the alliance was meant to reduce production costs and to improve competitiveness, against South Korean makers and also against liquid crystal panels, a format which is winning popularity.

"Through the deal, Matsushita and Hitachi will seek to cut production costs at a time when foreign rivals are gaining the upper hand," said Koichi Fujimoto, an analyst at Okasan Securities Co. Ltd.

"The alliance showed their firm intention to take back the initiative from South Korean rivals in the lucrative plasma display, which was originated in Japan," Fujimoto said.

Details of the collaboration are yet to be decided, the two presidents said.

A weekend news report, however, said that Hitachi would set up a subsidiary in April to control patents on plasma display technologies to be developed by domestic rival Fujitsu -- which pioneered flat screens more than 30 years ago.

Matsushita would later have a stake in the new company, said the Nihon Keizai Shimbun newspaper.

Prior to the deal with Matsushita, Hitachi announced a plan on Wednesday to raise its stake in its plasma-display panel venture with Fujitsu from 50 percent to 80.1 percent.

Matsushita, Hitachi and another Japanese electronics giant, Toshiba Corp., already established a joint venture last month to produce liquid crystal panels.

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