Toshiba is reportedly preparing to sell its image sensor operations to Sony in a deal estimated at around $165 million.
The move would mark Toshiba's effective withdrawal from producing image sensors used for smartphones and other devices, Kyodo News said.
The step comes as the Japanese engineering conglomerate attempts to restructure itself after a damaging billion-dollar accounting scandal.
The reported deal, estimated around 20 billion yen, could include sales of production facilities in southern Japan and lay-offs of thousands of workers, the Yomiuri Shimbun said.
The move could give Sony a firmer position as global leader in image sensors used in smartphones and other camera-equipped electronics, the Nikkei business daily said. Sony is used as a supplier for image sensors in Apple iPhones.
Toshiba was expected to officially announce the move in the coming week, Jiji Press said.
The reports came as Toshiba faces loud shareholder calls to change its corporate culture in which bosses routinely told their subordinates to hide poor financial results for years. Earlier this year, Toshiba admitted having systematically inflated profits by about 150 billion yen since the 2008 global financial crisis, adding 85 billion yen alone in the 2012 financial year.
Then-president Hisao Tanaka and his predecessor Norio Sasaki quit along with six other high-level executives at the sprawling Japanese conglomerate after an independent report found senior management complicit in a years-long scheme to pad profits.
"It has been revealed there has been inappropriate accounting going on for a long time, and we deeply apologise for causing this serious trouble for shareholders and other stakeholders," Toshiba said in a statement at the time.
In its first quarter results announced last month, Toshiba posted a net income loss of 12.3 billion yen and a drop in revenue of 64 billion yen to 1,350 billion yen.
Earlier this month, Sony announced that it would reshuffle its devices division operating structure, establishing a new business, Sony Semiconductor Solutions Corporation, and internally reallocating its battery and storage media business responsibilities.
At the time, Sony said the primary focus of Sony Semiconductor Solutions would be image sensors. The new structure is set to be in place by April next year.
Sony also said in September that it had not ruled out entering the automotive market, with Sony CEO Kazuo Hirai saying that electric cars had lowered the entry barriers in the car market.
"If we fundamentally believe at some point in time that we can make a difference in the automotive space, it's something that we will look at," Hirai said. "We don't have plans at this point but never say never."