Tokyo - Japanese electronics companies Toshiba Corp and NEC Corp began negotiations on a business alliance in semiconductor manufacturing as both are suffering from slowing market demands and severe price competition, Japanese media reported Friday.

Japan's Kyodo News Agency quoted sources familiar with the talks saying that Fujitsu, another Japanese electronics giant, may join the deal.

Toshiba reported on Thursday an operating loss of 158.8 billion yen (1.77 billion dollars) during for the third quarter and is expected to post its first annual net loss in seven years. Its semiconductor businesses alone are likely to incur an operating loss of 290 billion yen.

NEC Electronics Corp, a major chip-making subsidiary of NEC, also revised down its earnings projections for fiscal 2008, which ends in March, and expected a group net loss of 65 billion yen and an operating loss of 55 billion yen.

As Toshiba and NEC have already formed a business alliance for system large-scale integrated circuit (LSI) operations, the negotiations on a semiconductor business merger may involve integrating Toshiba's LSI operations with NEC Electronics, Kyodo quoted sources as saying. (dpa)