Sony Ericsson has spooked the financial markets by revealing it expects to make a pre-tax loss of €340-€390 million for Q1 (around $459-$526 million).

What's more, the company only anticipates selling around 14 million phones this quarter, which would be a sharp 37.2 per cent drop from the 22.3 million handsets it sold in Q1 last year.

There are two factors at work here. Although one is the gloom around the handset market in the face of the current recession, the second is more specific to Sony Ericsson.

The company has been slower to push into the smartphone sector than its rivals, yet that's the healthiest area of the market at the moment, as many of the consumers who are upgrading their phones are upgrading to smartphones.

Analysts are in no doubt that Sony Ericsson is having a tough time, to say the least.

"It's a real catastrophe. Those are very big losses and they are probably losing a lot of market share," Redeye analyst Greger Johansson tells Reuters.

"It's obvious that the volumes are much lower than the market had thought. And first and foremost, the losses are much, much bigger."

It remains to be seen if Sony Ericsson's rivals experience similar sales drops in Q1.