But the financial crisis has forced the two companies to change their plans.
"Faced with changes in the world economy, today Sharp and Sony amended and extended the non-binding MOI to confirm their mutual intent to postpone the targeted establishment of a joint venture until March 2010, approximately one year later than originally scheduled," the companies said in a statement today .
The companies also added that they would continue to negotiate and that they have set June 30, 2009 as the target date by which to enter into a definitive agreement to establish a joint venture.
Sharp plans to start operating its new LCD panel factory in Sakai City, Osaka Prefecture (currently under construction) by March 2010 as originally scheduled.
Once the joint venture agreement become effective, the new joint venture will seek to maximize the advantages gained from using the world's first 10th generation glass substrates to produce large sized LCD panels and modules, which are display panels equipped with components such as a backlight unit and LCD driver chips.
Sharp's new factory would use so-called 10th-generation glass substrates, which can yield more panels than earlier-generation, smaller glass substrates, improving production efficiency.
Sony currently runs an LCD panel joint venture with Samsung Electronics, but procurement from Sharp is expected to help it secure enough panels to meet fast-growing LCD TV demand without heavy capital investments.
Samsung LCD claims that the new joint venture would not affect the Samsung-Sony LCD partnership. Both Sharp and Samsung make flat TVs under their own brands, and Sony, Sharp and Samsung are competing for their piece of the global flat-TV pie.
Surveys have shown that Samsung leads in LCD TV sales with Sony to follow. Sharp, which is struggling to gain overseas brand recognition, still trails Samsung and Sony.