Toshiba will sell its image sensor manufacturing plant in Oita, southern Japan, to Sony by the end of the fiscal year through March and pull out of the sensor business, the companies said in a joint statement. Sony will take on the sensor business' 1,100 workers, the two companies said.
The deal was worth around 20 billion yen ($166.15 million), according to a company source familiar with the matter. The source requested anonymity because the companies did not disclose the value of the deal publicly.
Toshiba also said it will withdraw from the white light-emitting diode (LED) business, part of its semiconductor division.
The moves amount to the first restructuring steps Toshiba has announced since it said earlier this year that it had overstated earnings in a wide range of businesses including chips, television sets and personal computers over seven years.
For Sony, the acquisition of Toshiba's image sensor business will further solidify its already dominant position in the industry.
Sony controls about 40 percent of the market for complementary metal-oxide semiconductor (CMOS) image sensors, a type of integrated circuit that converts light into electrical signals.
Toshiba confirmed in September that it had overstated profits going back to fiscal 2008/09 by 155 billion yen. It also reported a 37.8 billion yen net loss for the last financial year through March to reflect more costs and conservative estimates on operations.
An accounting probe found in July that Toshiba suffered from dysfunctions in governance, with employees discouraged from challenging unrealistically high targets set by superiors.
Previous CEO Hisao Tanaka and several other board members stepped down amid the scandal, and the company has promised to improve its governance by bringing in more outside directors.
New chief executive Masashi Muromachi said in September he was considering an overhaul of its weaker operations, including "structural reforms that will be both drastic and without limitations."