Sony Corp., Panasonic Corp. and Japan Display Inc. plan to set up a new company later this year to develop small and medium-sized organic light-emitting diode displays for use in tablet devices, sources said on Wednesday.

The new company will receive funding from the Innovation Network Corporation of Japan, a public-private investment fund, and its establishment plan is expected to be announced later this month, the sources said.

The Japanese makers aim to better compete with South Korean rivals by combining their technological strengths in the joint venture, as OLED has the potential to become a next-generation display, given its ability to provide clearer images using thinner panels than liquid crystal displays.

Negotiations are in the final stage to form the new company, to be named JOLED, with Innovation Network Corporation of Japan expected to hold a 70 percent stake. Japan Display will take a 20 percent stake, while Sony and Panasonic will have a 5 percent share each, the sources said.

Sony and Panasonic have been engaged in OLED development for use in large televisions, but they faced difficulties in making a profit given high production costs. Therefore, they have decided to pull out of the development on their own and transfer engineers and other assets to the new company, according to the sources.

But Sony will continue developing its own OLED displays for industrial use in broadcasting and medical equipment.

Japan Display was formed in April 2012 by integrating the LCD businesses of Hitachi Ltd., Toshiba Corp. and Sony.