The profit warning - its second this year - demonstrates the Japanese-Swedish joint venture's continuing problems, but also indicates how mobile phone sales are suffering from the global economic downturn.
In the first quarter it reported a 47 per cent year-on-year fall in pre-tax profits to €193m ($304m) on sales down 8 per cent to €2.7bn.
The mobile phone maker indicated at the time that its second-quarter results would also suffer, but investors were still surprised by the warning.
Ericsson's shares fell 11 per cent on the news, but recovered to close down 8 per cent at
SKr60.80.Sony Ericsson's warning has dashed any remaining hopes that global handset sales might bounce back this year.
According to research firm Gartner, global sales fell 16.4 per cent in the first quarter year-on-year, the first recorded annual fall.
Sony Ericsson said it would ship about 24m handsets in the second quarter with an average selling price of €115. In the first quarter it shipped 22.3m handsets for €121 each.
The company blamed moderating demand for mid to high-end phones and shipment delays on new models.
It said these "continued market challenges" would impact sales and profit in the second quarter, with gross margin expected to decline - year-on-year and sequentially - while it would attain break-even at the pre-tax profit level.
Sony Ericsson slipped to fifth place this year behind LG of South Korea among the world's largest handset markers as sales of its mid to high-end phones suffered more than the lower priced handsets of its competitors.
In the first quarter it had a market share of 8 per cent, down 1 percentage point.
Sony Ericsson has also been plagued by component shortages that have led to shipment delays of the new mid-priced phone models.
In Europe, the economic slowdown, together with longer mobile phone operator contracts, means consumers are replacing their handsets less frequently.
Sony Ericsson has been more affected than its rivals because the phones it produces are more expensive, leaving it exposed to a weak European market.
"It's highly exposed to western Europe, which is the hardest hit region," said Martin Nilsson, an analyst at Carnegie Investment Bank in Stockholm.
In emerging markets, where prices are falling, Sony Ericsson's sales have also suffered.
Competitors such as Nokia, the market leader, have weathered the downturn better because sales of their low-end phones are still robust.
source : http://www.ft.com/
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