The 10 billion yen ($122 million) investment by US-based Qualcomm comes as Sharp, mired in heavy losses, has also reportedly been talking with other US technology giants, including Intel and Dell, about a possible investment.
The Qualcomm deal would see the pair jointly develop energy-efficient liquid crystal display panels for smartphones using the Japanese firm's technology, with the US company getting new Sharp shares equal to about five percent of its current market value, Jiji Press news agency reported.
The agreement calls for Qualcomm to invest about 5.0 billion yen in Sharp by the end of the year, with the other half invested as the joint venture progresses, the leading Nikkei business daily said.
News of the deal gave Sharp shares a boost in Tokyo where the embattled stock rose 1.74 percent to 175 yen by the morning break.In a short statement on Tuesday morning, Sharp said "today's reports about a US chipmaker's investment in our company are not what we have announced".
Sharp has suffered a series of credit rating downgrades and warned it expects to lose about $5.6 billion in the fiscal year to March 2013.
The Osaka-based maker of Aquos brand electronics has announced thousands of job cuts while cutting wages for employees from the factory floor to the executive boardroom and selling real-estate to shore up its balance sheet.
Earlier this year, Sharp said it had reached a capital injection deal worth about $800 million with Taiwan's Hon Hai Precision, which makes Apple gadgets in China, but the deal stalled as Sharp's share price nosedived.
Japan's battered electronics sector has suffered from a myriad of problems including a high yen, slowing demand in key export markets, fierce overseas competition and strategic mistakes that left its finances in ruins.