The handset manufacturer sees weak sales in the mid and high-end markets and plans to cut 2,000 jobs.
Sony Ericsson saw its second-quarter earnings drop dramatically from last year, and the company struggled with sales in mature markets.
Net profit dropped to $9.5 million from about $348 million during the same period last year. Sales also slipped to $4.46 billion from about $4.9 billion last year.
Overall, the company posted an operating loss of $3.1million for the quarter, and it shipped 24.4 million units. By comparison, Nokia announced Thursday it had shipped 122 million handsets during the same period.
Sony Ericsson faced increased competition for high-end phones in the United States and Western Europe. Unlike rival Nokia, Sony Ericsson does not have a large line of entry-level phones to offer in emerging markets like China and India.
Because of this, Sony Ericsson finds itself more susceptible to slipping demand for sophisticated handsets in mature markets.
In June, the company warned that slower sales in Western Europe would hurt earnings, and it said Friday that it expected "challenging market conditions" to continue for the rest of the year. This was the second consecutive quarter in which Sony Ericsson had issued a profit warning.
Because of the economic struggles, the company will be cutting 2,000 jobs to save $474 million annually.
"We are aligning our operations and resources worldwide to meet an increasingly competitive business environment and to help restore our capability for profitable growth," Sony Ericsson CEO Dick Komiyama said in a statement. "The measures we are taking are aimed at becoming a faster, more agile, and more cost-efficient organization that can continue to create innovative products that excite consumers."
About a year ago, Sony Ericsson was the world's fourth-largest seller of mobile handsets, and it was nipping at Motorola's heels for the third slot. But it now ranks behind Nokia, Samsung, Motorola, and LG Electronics.
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