Profits fell even further than expected for Sony Ericsson in the latest Q2 financial results, despite an earlier profit warning.
Net profit fell from €220 million at the same point last year, to just €6 million this year, which is a huge slide.
The likelihood is SE will have to slash around 2,000 jobs worldwide in order to cut costs.
Sales of handsets also dropped about nine per cent compared to the same time last year, partly due to the lowered price points for the handsets throughout the world.
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The Swedish-Japanese handset manufacturer is struggling to keep things fresh in the mature European and US markets, and has not got the foothold in the emerging markets that is allowing rivals like Nokia to stay strong.
SE expects things to remain challenging, especially in the next quarter, but still hopes to get a slice of the global handset pie, which is still likely to expand around 10 per cent next year thanks to markets like India and China.
The company is also releasing a slew of phones later this year, including the Xperia X1 and a number of Walkman-branded phones, though seems to hope it can find success in a saturated market by targeting the high-end consumer.