UPDATE 1-Pioneer to stop making 42-inch plasma panels-report

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TOKYO, Feb 25 (Reuters) - Pioneer Corp (6773.T: Quote, Profile, Research, Stock Buzz) will stop making 42-inch plasma panels and instead buy panels in that size and smaller from Panasonic maker Matsushita Electric Industrial (6752.T: Quote, Profile, Research, Stock Buzz) or Hitachi Ltd (6501.T: Quote, Profile, Research, Stock Buzz) to turn around its loss-making flat TV business, the Asahi newspaper said.

Japanese consumer and auto electronics maker Pioneer will end output of such panels at a plant in Kagoshima prefecture in southern Japan as early as by March 2009, the paper said in the report on Saturday.

It will focus on making panels 50 inches or larger at other plants, the Asahi said.

It would be Pioneer's latest step away from a vertically integrated business model, in which manufacturers conduct production of key parts as well as assembly of finished products, after its decision last year to buy liquid crystal display panels from Sharp Corp (6753.T: Quote, Profile, Research, Stock Buzz) to start offering LCD TVs.

Pioneer's plasma business has been struggling to compete with larger rivals with better production efficiency such as Matsushita and LG Electronics Inc (066570.KS: Quote, Profile, Research, Stock Buzz).

Pioneer has a target to sell 480,000 plasma TVs in this business year, ending on March 31, less than one-tenth of Matsushita's sales target of 5 million units.

Pioneer bought the Kagoshima plant from NEC Corp (6701.T: Quote, Profile, Research, Stock Buzz) and now wants NEC to buy it back, the Asahi said.

A Pioneer spokesman said its flat TV strategy will become available when it unveils a mid-term business plan in early March, but nothing specific has been decided.

Shares in Pioneer were up 3.8 percent by early afternoon, outperforming the Tokyo stock market's electrical machinery index , which rose 2.2 percent. (Reporting by Taiga Uranaka, Kiyoshi Takenaka; Editing by Michael Watson)