Panasonic is is stepping back from the consumer smartphone market to focus on products for businesses only.
It will pull out of the smartphone market entirely in Japan and use outsourced production in emerging markets such as India, reports Reuters.
Panasonic's mobile arm posted an 8.1 billion yen loss last year, and says it will lose more than the 1.1 billion yen estimated for its next financial year ending March 2014.
In light of this, it is now transforming from a consumer tech manufacturer to a B2B supplier, and will focus on supplying smartphones for businesses, in a similar way to its Toughbook PC laptop products.
Panasonic will use its brand to sell phones made by other manufacturers, like it already does in India.
Panasonic President Kazuhiro Tsuga said he would "weed out" any division that fails to meet a five per cent operating margin goal within three years.
"It's not acceptable for the company to be bleeding red ink like this, so we have to think about ways to develop assets that we do have in a more effective direction," he said.
Panasonic has struggled to compete with the likes of Apple and Google smartphones in recent years. In 2001, it was the second-largest handset maker in Japan, after NEC, with more than 19 per cent of the market. Last year, it had a seven per cent share, behind Apple's 25 per cent lead.