Mobile phone maker Sony Ericsson braced for a tough second half of 2009 after losing market share in the second quarter as its mid-range products found little favor among a declining customer base.

The handset industry this year faces its worst downturn on record and Sony Ericsson expects the global market to shrink at least 10 percent.

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

The first global handset maker to report second quarter figures, Sony Ericsson on Thursday posted a pretax loss of 283 million euros ($398.6 million), in line with expectations, including 1 million in restructuring charges.

World no.1 Nokia is due to report second-quarter earnings on Thursday at 1000 GMT.

The mean forecast in a Reuters poll had been for Sony Ericsson, the world's fifth-biggest, 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 from the 358 million euros of the previous three months.

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.

'STABILITY AT A LOW LEVEL'

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.

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

Several analysts said the shipments figure was disappointing.

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.

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.

(Additional reporting by Tarmo Virki; editing by John Stonestreet)

($1=.7099 Euro)

Electronics Sony