Sony Ericsson Q2 loss in line

The exterior of Ericsson's headquarters are seen in Stockholm April 30, 2009.

STOCKHOLM (Reuters) - Mobile phone maker Sony Ericsson swung to a pretax loss in line with expectations in the second quarter as the global recession hit market demand and highlighted the company's weak product portfolio.

The handset industry is braced for its worst decline on record in 2009 and Sony Ericsson expects the global handset market to shrink at least 10 percent this year.

The firm has rapidly lost market share in recent quarters due to a portfolio focussed on camera and music phones, mid-range products that are suffering more from demand slump than basic models or high-tech gadgets such as the i-Phone.

Sony Ericsson -- the first global handset maker to open its books on the quarter -- posted on Thursday a pretax loss of 283 million euros (243.2 million pounds) including 1 million in restructuring charges.

The mean forecast in a Reuters poll had been for the world's fifth-biggest handset maker to report a 284 million euro loss before restructuring charges of 62 million.

Sony Ericsson said cost cuts and a better product mix had contributed to losses shrinking in the second quarter from the previous three-month period, when its loss totalled 358 million euros.

"As expected, the second quarter was challenging and we still believe the remainder of the year will be difficult for Sony Ericsson," said Sony Ericsson President Dick Komiyama.

"Our focus remains on bringing the company back to profitability and growth as quickly as possible. Our performance is starting to improve due to our cost reduction activities."

World no.1 handset maker Nokia (NOK1V.HE) is due to report second-quarter earnings on Thursday at 1000 GMT (11 a.m. British time).

Komiyama told a conference call there were signs of stability in the handset market.

"We see continued tough conditions ... There is a certain stability in the market, but it is on a low level," he said.

MARKET SHARE

Sony Ericsson shipped 13.8 million units in the quarter -- a decrease of 43 percent year-on-year and a sequential decrease of 5 percent -- at an average selling price of 122 euros.

The firm said its market share was over 5 pct in the second quarter, compared to 6 percent in the previous quarter and a mean forecast for 5.9 percent.

"The result came in as expected, but on the negative side they keep losing market share and sales were lower. On the positive side, the average selling price is being kept up pretty well and they have a net cash position of almost 1 billion," said Greger Johansson, analyst at Redeye.

"I think they will see a couple of tough quarters going forward and I still think there is a risk they will need new money."

However, some analysts were more positive.

"Although Sony Ericsson's unit shipments in the second quarter were disappointing, the more important metric is an improvement in margin," Geoff Blaber at CCS Insight said.

"An operating margin of -16 percent compared to -21 percent in the first quarter suggests Sony Ericsson has turned the corner. The cost cutting measures have created a foundation on which to improve performance going into 2010."

Shares in Ericsson were up 2 percent at 0907 GMT (10:07 a.m. British time).

(Additional reporting by Tarmo Virki)