We reported last week that two of Japan’s top cell phone makers, Fujitsu and Toshiba, were in talks to merge their cell phone businesses. And today, we have the rumor confirmed. Under the agreement, Toshiba will spin off its handset unit and Fujitsu is expected to take the majority stake in the joint venture (between a whopping 70 and 80%, according to reports in Japanese media).

The integration is aimed at combining development, production, marketing and sales of cell phones. It will create Japan’s second largest cell phone maker (with a combined 18.7% domestic market share), following Sharp (26.1%).

Fujitsu and Toshiba say that the joint venture will be launched as early as October 1 this year and that the goal is not only to catch up to Sharp domestically but also to enter Asia and markets elsewhere as soon as possible.

These are understandable reasons. In Japan itself, both companies are facing increasing competition from the joint venture NEC, Casio, and Hitachi formed earlier this month and from the iPhone. Hit by the recession and a rapidly graying user base, shipments of handsets within Japan fell 12.3% year on year to a 12-year low of 31 million units in fiscal 2009.

Historically, exports have been weak as well. Toshiba, for example, sells just 100,000 handsets yearly in Europe. The Fujitsu-Toshiba entity would not even command 1% of the global cell phone market if it launched today.