Japanese electronics supplier Sanyo Electric Co. Ltd. (6764.TO) and Dutch navigation device maker TomTom NV (TOM2.AE) Wednesday said they will team up to produce multimedia navigation systems.

"It's our ambition to sign a deal with a car maker towards the end of next year together with Sanyo," TomTom spokesman Taco Titulaer told Dow Jones Newswires. He said negotiations are ongoing with Japanese car makers, without elaborating.

Sanyo, which is unprofitable, said that through collaboration with TomTom it can tap into potentially lucrative growth in North American and European markets as the auto industry shows signs of recovery while other Sanyo businesses suffer from weak consumer demand.

The firms aim to produce multimedia devices that combine navigation-based functions with other features, such as a DVD player, TomTom's Titulaer said.

Sanyo also said that while navigation systems built into vehicles are commonplace in its home market, portable navigation devices such as those produced by TomTom, often fitted separately to cars after they are sold, are more popular in Europe and North America.

Teaming up with Sanyo in the European and U.S. in-car navigation market is good news for TomTom, SNS Securities said, noting that the tie-up could allow TomTom to develop multimedia navigation systems for the lucrative part of the in-car segment, where Pioneer Corp. (6773.TO), Delphi Corp. (DPH), Continental AG (CON.XE) and Blaupunkt are market leaders.

SNS Securities also said Sanyo's connections with the U.S. car industry would give TomTom a better chance to break into the that market.

SNS Securities rates TomTom at accumulate with a target price of EUR8.

By 1430 GMT, TomTom shares rose 1.6% to EUR13.10 in Amsterdam, slightly outperforming the broader market.

Sanyo shares earlier closed up 2.5% at Y254 in Tokyo, in line with gains by electronics peers, having traded at Y252 just before the news was disclosed, with little short-term benefit from the tie-up expected on Sanyo's bottom line.

The Nikkei index ended the day 0.5% higher.

The collaboration with TomTom comes as Sanyo, in the process of being taken over by local peer Panasonic Corp. (6752.TO) in a $9 billion deal, chases growth markets to help meet its target of breaking even in the fiscal year through March 2010. It recorded a net loss of Y92.3 billion in its latest fiscal year ended March.

Web sites: www.sanyo.com ; www.investors.tomtom.com

-By Archibald Preuschat, Dow Jones Newswires; +49 211 13872 18; archibald.preuschat@dowjones.com