By Makiko Yamazaki
TOKYO (Reuters) - The head of smartphone screen maker Japan Display Inc said he would not turn down a partnership with embattled rival Sharp Corp amid speculation that Japan Display's top investor, a state-backed fund, wants a tie-up between the two.
People close to the matter have told Reuters that the fund, Innovation Network Corp of Japan, was considering investing in Sharp's liquid crystal display (LCD) unit to broker a merger or partnership with Japan Display.
Sources have also said Sharp's banks are telling it to find a buyer for all or part of its ailing LCD business within months. Both companies make screens for high-end smartphone makers.
"If there are such discussions, we would not say no, from the perspective of protecting Japan's manufacturing technology," Japan Display Chairman and Chief Executive Mitsuru Homma told reporters on Monday.
"I believe they have extremely valuable technology, manufacturing technology that we don't have."
He also said he saw a threat in any deal that would result in Sharp's technology "going to a third country", addressing speculation Sharp could tie up with mutual rival Hon Hai Precision Industry Co Ltd of Taiwan.
Representatives at Sharp were not available to comment.
Homma was speaking after Japan Display announced that it swung to an operating profit of 10.6 billion yen ($85.8 million) in the six months through September from a loss of 20.3 billion yen in the same period last year.
The company was formed in a government-backed deal in 2012 from the ailing display units of Sony Corp, Toshiba Corp and Hitachi Ltd. It initially lagged Sharp and other Asian rivals but has recovered in the past year due to strong orders from Apple Inc.
By contrast, Sharp's July-September operating profit tumbled 86 percent from a year earlier to 3.5 billion yen as it struggled with pricing pressure, showing little improvement in business since a $1.9 billion bailout in May. Its LCD division booked an operating loss of 12.7 billion yen in the quarter.
(Additional reporting by Reiji Murai; Writing by Ritsuko Ando; Editing by Muralikumar Anantharaman and Christopher Cushing)