Japan's Sony Corp is in talks with Taiwan's AU Optronics Corp to jointly produce next-generation OLED televisions, the Yomiuri Shimbun reported, positioning itself for the post-liquid crystal display (LCD) TV market.

A commitment by Sony to a technology that Korean rivals Samsung Electronics and LG Electronics are promoting would more clearly define the battle lines over what is seen as the next generation of TV sets to replace LCDs.

Both Sony and AU Optronics declined to comment on the report, which comes after Sony's new CEO, Kazuo Hirai, last week suggested he was open to cooperation in new TV technologies as he outlined a turnaround strategy for his loss-making company.

An industry source told Reuters earlier this month that there was talk Sony was considering a tie-up with AU Optronics.

We know that Sony will have to form some kind of alliance with a third party since it would be difficult for it to capture more share in the OLED TV area alone. It's not a surprise if it is considering a tie-up (with AU), Nobuo Kurahashi, an analyst at Mizuho Investors Securities, said on Wednesday.

For Taiwan and Japan, their interests coincide. If they don't do anything, there will always be a gap in market share, he added, pointing to competition from South Korea.

Both Samsung and LG in January displayed prototype 55-inch OLED (organic light emitting diode) screens - which boast sharper images and do not need backlighting - at the CES consumer electronics show in Las Vegas.

Sony, which pioneered the technology with the world's first OLED TV in 2007 halted production of the $2,000 screens for consumers in 2010 amid a global downturn, focusing instead on 3D. Sony still makes OLED screens costing as much as $26,000 for high-end business customers.

PRICE IS KEY

For any maker of credit card-thin OLED displays, the obstacle to consumer acceptance is price. At a rumored price tag of $10,000, the 55-inch models from Samsung and LG would be ten times the price of an equivalent LCD TV.

The company that can find a way to mass produce at a sharply lower cost would have a headstart over its rivals. Sony, which no longer owns factories capable of fabricating TV size display panels would either have to invest in new plant or tie up with another maker to stay in the race.

OLED is not the only new technology that may be offered to consumers. Japanese makers including Sony are also working on ultra high-definition sets, dubbed 4K. Sony also has what it calls crystal LED, which also does away with a backlight, that it says offers richer colors and better contrast than conventional sets.

Taiwan's LCD industry, which made a loss of T$125.7 billion ($4.2 billion) last year, is expected to benefit from increasing cooperation and outsourcing from Japan in terms of technology and revenue.

Sony shares rose as much as 2.4 percent in Tokyo before retreating to fall 0.6 percent in a stronger overall market, while AU Optronics was up 0.35 percent.

The price barrier to OLED's wider consumer acceptance means LCD is still likely to dominate the global TV market for some time to come. Sony's Hirai in February predicted it would remain the main TV technology for at least the next three years.

Hammered by its aggressive Korean rivals and overrun by today's gadget leader Apple, Sony badly needs a new hit product to refill its coffers. It has recorded losses for the past four years and eight consecutive years of deficits in its TV unit amounting to $10 billion.

For the year that ended March 31, the company forecast a record net loss of 520 billion yen ($6.4 billion).

Hirai's revival strategy for the next three years includes a push into smartphones, growth in games and cameras and big cost cuts in its TV business that has not made a profit in eight years.

In the TV business, Hirai aims to cut fixed costs by 60 percent and operating costs by 30 percent over two years, while offering fewer models.

(Additional reporting by Clare Jim in Taipei; Editing by Joseph Radford and Richard Pullin)

South Korea Japan Electronics Sony