Sony (NYSE: SNE - News) Ericsson, the world's fourth largest mobile phone manufacturer, on Wednesday issued a profit warning because of a shortfall in sales in the company's core European markets.

The warning suggests the global economic downturn is starting to bite in the telecoms industry.

The company hinted that European consumers were buying fewer new mobiles to replace their existing handsets than previously anticipated.

The news prompted a near 10 per cent fall to SKr10.35 during morning trading in shares of Ericsson, Sony Ericsson's joint owner with Japan's Sony.

Ericsson, the world's leading telecoms equipment manufacturer, last month reported net income of SKR21.8bn for 2007, down 17 per cent, after a profit warning last October because of a shortfall in sales of wireless network gear.

Sony Ericsson said its revenue and net income in the first quarter of 2008 would be negatively impacted by slowing sales growth relating to its mid to high end priced mobiles.

It added some component shortages had also contributed to modest sales of mid priced mobiles.

Dick Komiyama, Sony Ericsson's president since last November, said the market was proving to be challenging.

"This has been more pronounced in the mid to high end replacement sector of the market in Europe, where Sony Ericsson has stronger than average market share," he added.

He stood by his target for Sony Ericsson to become one of the top three mobile phone manufacturers by 2011.

The company is expecting to generate a pre tax profit of E150-200m in the first quarter of 2008, compared to E362m in the same period last year, partly because of increased research and development spending.

Mr Komiyama is making a priority of increasing Sony Ericsson's sales in developing countries such as China and India by expanding the company's range of mobiles. He also wants to boost sales in the US, where Sony Ericsson is weak.

He said he hoped to see a positive financial effect in the second half of 2008 from Sony Ericsson's strategy to raise its game outside of Europe.

Richard Windsor, analyst at Nomura, said the biggest issue behind the profit warning appeared to be the economic slowdown.

Sony Ericsson is planning to ship 22m mobiles in the first quarter, 17 per cent below Mr Windsor's estimate.

He said other mobile phone manufacturers could be negatively impacted by the economic slowdown, although he said Nokia, the world's largest handset maker, may be least affected because of its strength in emerging markets.

He added LG, the second largest handset maker, may also be less affected because it was taking market share from Motorola, the troubled US mobile manufacturer.

Texas Instruments, the US microchip maker that supplies mobile phone makers, earlier this month said its sales and earnings would be lower than expcted in the first quarter of 2008.