Japan's Sanyo Electric Co Ltd said it has reached a basic agreement to sell its loss-making mobile phone business to Kyocera Corp, creating the world's seventh-largest cellphone provider.

Sources close to the matter told Reuters last month that Kyocera was in talks to buy Sanyo's mobile phone unit.

Sanyo said the selling price has yet to be fixed.

The Nikkei business daily reported on Thursday that the Kyoto-based electronics components and cellphone maker has offered 70 billion yen ($600 million) for the business which posted 277 billion yen in revenues in the year ended March, accounting for 13 percent of Sanyo's consolidated sales.

Sanyo and most other Japanese cellphone makers are in a tough position as they compete outside Japan with much larger rivals such as Finland's Nokia and Motorola Inc of the United States, and face a maturing market at home.

The sale is the latest step by Sanyo, restructuring with the help of shareholder Goldman Sachs, to shed non-core or struggling businesses in order to focus on key operations such as rechargeable batteries.

Sanyo, which booked a net loss for the three business years through March, sold its stake in leasing firm Sanyo Electric Credit Co to General Electric Co this year and is seeking a buyer for its microchip unit.

Kyocera was the world's 10th-largest mobile phone maker in the second quarter of calendar 2007 in unit sales to end-users, according to research firm Gartner, while Sanyo was the 11th largest.

The deal is expected to boost Kyocera's U.S. operations as Sanyo has Sprint Nextel Corp as a major customer.

Seeking growth overseas is important for Japanese mobile phone makers since a structural change is likely to make Japan a tougher market for handset makers.

As early as next year, Japanese mobile phone operators are expected to start cutting the subsidies paid to retailers to keep handset prices affordable, and to lower communication charges instead.

This will discourage subscribers from replacing their handsets so frequently, hitting hard Japanese mobile phone makers, which rely heavily on domestic demand, analysts say.

Prior to the announcement but after the Nikkei report, shares in Sanyo, the world's No.1 rechargeable battery maker, closed up 1.6 percent at 191 yen, while Kyocera rose 1.8 percent to 10,840 yen and the Nikkei index was up 1.6 percent.

Japan Nikkei 225 T-mobile Electronics