Sony (NYSE: SNE) Ericsson (NSDQ: ERIC) managed to break even in the face of what it called “challenging market conditions and increased competition,” the company announced today in its Q2 earnings report. Net income nosedived in the second quarter, plummeting to 6 million euros ($9.5 million), down from 133 million euors ($211 million) in the first quarter, and 220 million euros ($348 million) a year ago.

More Details:

— Sales Down: Sales slipped 9 percent in the quarter to 2.82 million euros ($4.47 million) compared to a year ago. The handset maker, which now puts its global market share at 8 percent, blamed its poor performance on the continuing decline of the mid-to-high end market, increased competition and unfavorable exchange rates.

— Gross Margins Fall: Gross margins were also down, sinking to 23.1 percent in Q2 from 29.2 percent sequentially, and 29.6 percent a year ago. SE, which was particularly hard hit in Europe, acknowledged that its “less favorable product mix” was partially to blame, as was the increased price competition.

— ASP Down: Sony Ericsson’s average selling price (ASP) also fell, coming in at 116 euros ($184), as compared to 121 euros ($192) last quarter, and 125 euros ($198) a year ago. SE blamed increased competition one again, as well as the bigger proportion of low-end phones in its portfolio.

— Market Outlook: Meanwhile, the company came out with a similar forecast to its rival Nokia (NYSE: NOK), predicting that the global handset market for 2008 would grow at a rate of around 10 percent from more that 1.1 billion units in 2007. In its earnings report yesterday, Nokia said the market would grow by 10 percent or more. It also said the majority of growth would come from emerging markets, where low-end phones dominate.

— Challenges Ahead: Sony Ericsson warned that it expected “challenging” marketing conditions to “prevail” for the company, especially for the third quarter, but would continuing investing in R&D as well as reining in operating expenses to help “restore the company to profitability.” SE said its goal was to trim 300 million euros ($475 million) in operating expenses annually.

Full Earnings Release in PDF | Conference Call

UPDATE: The company will cut 2,000 jobs “within the next 12 months” as part of an effort to reduce operational costs by 300 million euros ($470 million) a year, AP reports. In a statement, Sony Ericsson President Hideki Komiyama said his company estimates restructuring charges to “be of the same magnitude as our reduction in operating expenses.”