By Kentaro Hamada and Edwina Gibbs

TOKYO (Reuters) - Matsushita Electric Industrial Co and Hitachi Ltd are discussing multi-billion dollar deals on flat panels that could reshape an industry hit by fierce competition, a source familiar with the matter said.

The two possible deals would allow Matsushita, the world's biggest maker of plasma TVs, to do an about-face and move aggressively into LCDs while allowing troubled Hitachi to exit the business or scale down its involvement.

Panasonic-brand maker Matsushita is looking to take control of a liquid crystal display (LCD) venture it has with Hitachi and Toshiba Corp , the source said.

The Nikkei business daily reported that Matsushita would likely invest some 300 billion yen ($2.7 billion) in a new factory through the venture, called IPS Alpha Technology Ltd.

Matsushita and digital camera maker Canon Inc are also seeking to take stakes in Hitachi Displays Ltd, aiming to develop organic light-emitting diode (OLED) panels, which are seen as a next-generation display technology.

The Nikkei said each would invest more than 100 billion yen for minority holdings in Hitachi Displays, which makes small and mid-sized LCD panels but is also developing OLEDs.

Matsushita, Hitachi and Canon all said no decisions had been made.

Amid robust worldwide demand for flat-screen TVs, the stronger panel makers are upping the ante and Matsushita is taking the initiative, analysts said.

Plasma displays once dominated the market for TVs with screens of 40 inches and larger but have lost ground as LCD makers have produced bigger screens at lower prices by introducing larger production lines that cut costs.

LCD market leader Sharp Corp is spending over $3 billion to build the world's biggest LCD plant while Sony Corp and partner Samsung Electronics Co are ramping up production at their plant in South Korea.

"It may be a short-term negative for Matsushita as there are doubts about IPS Alpha's competitiveness," said Koichi Hariya, an analyst at Mizuho Securities.

"But if you believe that demand for flat-screen TVs will increase beyond 2010, then the company should be making its move now, so the deal would be positive," he said.

Hitachi, a sprawling electronics maker whose businesses range from nuclear reactors to hard drives, has been hurt by losses in its flat TV business and has said in the past that further investments in IPS Alpha could be difficult.

Some analysts, however, had doubts about the deal as reported by the Nikkei. Hitachi would likely hold around 50 percent of Hitachi Displays, the paper said.

"Hitachi may be bound by contract in its deal with Matsushita and Canon that could make it difficult to easily exit the business," wrote Goldman Sachs analyst Ikuo Matsuhashi in report, adding that Hitachi may have to shoulder some of Matsushita's investment in a new factory.

For Canon, the investment in Hitachi Displays would give it access to OLED technology which it hopes to use in its digital cameras.

Matsushita's shares were 0.2 percent lower at 2,240 yen in afternoon trade while Hitachi was down 0.5 percent at 780. Canon shares were 0.4 percent higher at 5,450 yen and the benchmark Nikkei average was 0.3 percent lower.

(Additional reporting by Aiko Hayashi, Nathan Layne and Mayumi Negishi, Editing by Michael Watson)
© Copyright 2007 Reuters.

Photo:
Hitachi HD TVs are displayed at an electric home appliances shop in Tokyo May 16, 2007. REUTERS/Kim Kyung-Hoon