Nokia, the world's biggest mobile phone manufacturer, has cut prices of its handsets by up to 10 per cent as the battle for market share heats up.

Manufacturers are under increasing pressure because of slower demand in Western Europe, especially for more expensive handsets. However, surging sales of cheaper phones in emerging markets helped the Finnish giant to increase its market share in the second quarter from 40 to 41 per cent.

Geoff Blaber, analyst at CCS Insight, said: “A lot of the cuts were made in Nokia's music portfolio, which is its mid-tier. That's a particularly competitive segment. There have been some new products from Sony Ericsson and, really, it is Nokia pinpointing particular competitors.”

Sony Ericsson's market share fell to 8.2 per cent in the second quarter, from 9.5 per cent the same time last year, pushing it from fifth to sixth place. The group said last month that it would cut 2,000 jobs and forecast that the remainder of the year would be “challenging”.

Mr Blaber said that Nokia was also focusing price cuts in the higher end of its portfolio, such as the multimedia N81 handset, which competes directly with Apple's iPhone 3G that went on sale this month.

Ben Woods, research director at CCS Insight, said: “Nokia has always been extremely tactical with its pricing, pinpointing sweet spots in different segments of the market and making adjustments to wrongfoot competitors.”

In a research note, Mr Woods wrote: “Nokia remains the unassailable leader in the mobile phone market. This quarter only served to further underline its dominance. We expect Nokia to get even stronger in the second half. Worsening market conditions could serve to strengthen Nokia's market share given the resilience afforded by its strong brand, substantial global footprint and immense economies of scale.”

One motive for the price cuts is to make way for Nokia's new SuperNova multi-media phone range with integrated music players.

Rival mobile manufacturers are facing a tough market as the credit crunch bites.

Caroline Milanesi, an analyst at Gartner, said: “LG and Motorola have said their third quarter will be down, Sony Ericsson has said it continues to have issues, while Samsung saw sales down in Q2. The third quarter might be a little bit more challenging than people were expecting due to the economic situation and delays in products.”

Amid the gloom, Motorola surprised analysts yesterday by reporting a small quarterly profit, having sold more mobile phones than expected and increased its market share in North America.

Sales of 28.1 million phones in the second quarter allowed Motorola to cling on to its place as the third-largest phone maker - narrowly ahead of LG, the Korean manufacturer - after forecasts that it would drop to fourth place. The group also said that its full-year profit would beat Wall Street estimates and added that it plans to offer 50 new phones this year.

It also said that it was making progress in its plans to hive off its handset business, a move targeted for the third quarter of 2009. Richard Windsor, an analyst at Nomura, said: “They have managed to hang on to more market share than we expected and managed to do it without cutting prices too much.”

However, Ed Snyder, an analyst at Charter Equity Research said: “I think they have hit bottom, not improving much, but not free-falling. But if Nokia is cutting prices then it is bad for everybody, including Motorola.”

The global mobile phone market grew by 12.3 per cent year-on-year in the first half of 2008, according to CCS Insight, with shipments reaching 583.8 million units - more than the total sales for the full year of 2003.

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