China's Huawei Technologies took the No. 3 position in the ailing mobile network gear market in the first quarter, doubling its market share from a year ago and bypassing Alcatel-Lucent .

Sweden's Ericsson expanded its lead as its closest rival Nokia Siemens Networks lost market share, researcher Dell'Oro said on Thursday.

The telecom equipment market has seen cut-throat competition for new business during the past few years, driven by Asian vendors, and the outlook remains tough.

Alcatel-Lucent has forecast the market to shrink 8-12 percent in 2009, while Nokia Siemens has said the market would fall some 10 percent.

Dell'Oro said in its quarterly market report the market contracted in January-March 9 percent from a year ago, with China 3G tenders helping the market from falling further.

Intense price competition among vendors vying for share of the Chinese 3G tenders resulted in very steep price erosion, particularly in CDMA, said Dell'Oro analyst Scott Siegler.

The world's top mobile network equipment maker, Ericsson, increased its share slightly to 33 percent share of the market in January-March, while the market share of Nokia Siemens Networks dropped to 21 percent from 24 percent a year ago, Dell'Oro said.

Huawei roughly doubled its market share to 15 percent, while Alcatel-Lucent's share fell to 14 percent from 16 percent, Dell'Oro said.

Nokia Siemens has lost market share for several quarters in a row as the venture is trying to improve its profits and shies away from the tightest competition. It has set itself an official target to keep its market share this year on last years' level.

We believe Nokia Siemens Networks is now in a dangerous vicious circle, Bernstein analyst Pierre Ferragu said in a research note.

The joint venture's focus on being selective on deals and balance sheet discipline has led to market share loss, which in turn is generating more pressure on profitability as evident in its dismal operational performance in the first quarter, he said.

Nokia Siemens fell to an underlying loss of 122 million euros in the January to March period, compared with a profit of 81 million a year ago. The company blamed the outcome on a 12-percent fall in net sales.

We believe the risk from here is that the pressure on bottom line will lead to even more cautious pricing and additional share loss, driving the need for further restructuring, Ferragu said.

The tight market claimed its first victim in the quarter.

Nortel , once the largest North American maker of telecommunications gear, filed for Chapter 11 bankruptcy protection in U.S. federal court and for creditor protection in Canada's Ontario Superior Court of Justice in January.

Nortel saw its market share halving to 4 percent from 8 percent a year ago, Dell'Oro said.

(Reporting by Tarmo Virki; Editing Bernard Orr)

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