Sony and NEC have concluded a basic agreement to merge their optical-disc drive businesses into one company, they announced yesterday.

The two companies hope to launch the venture on 1 April 2006, which is the first day of the financial year in Japan. Sony will hold a 55 percent stake in the as-yet-unnamed concern and NEC will hold the remaining 45 percent stake, according to the terms of a memorandum of understanding signed by the companies.

The joint venture will work on planning, design, manufacturing and marketing of optical-disc drives for products such as PCs and DVD players, they said in a statement. In the next-generation optical disc market the company will manufacture drives for both the HD-DVD format, of which NEC is a major backer, and Blu-ray Disc, of which Sony is a leading supporter, both companies said.

The merger plans bring together NEC's optical-disc LSI (large scale integrated circuit) chip technology with Sony's optical pick-up technology. Both companies are already major manufacturers of optical-disc drives.

Discussions on a merger grew out of a business relationship that began in the middle of this year when NEC started ordering parts for its drives from Sony, said Sojiro Shimura, a spokesman for NEC in Tokyo.

In the course of discussions between the two companies the conclusion was reached that the respective businesses were more complementary than competitive, said Gerald Cavanagh, a Sony spokesman in Tokyo. "There was a feeling that those two complementary strengths would make more sense in a joint venture than competing against each other," he said.

The optical disc drive businesses of Sony and NEC generated a combined revenue of 220 billion yen (approx £1.1bn) in the fiscal year from April 2004 to March 2005, they said. Together they have an estimated optical-disc drive market share of around 20 percent, according to the companies.