Motorola warned last night its handset business continued to suffer in the second quarter as sales of its phones declined in Europe in Asia. As Motorola’s market share declines, however, other vendors are racing to fill in the gap, led by Sony Ericsson, which said today it picked up 3 percentage points in its global share of handset sales.

Motorola said it expects to report Q2 shipments of 35 million to 36 million devices, compared to the 51.6 million units that left its factories in the same quarter last year. Additionally Motorola said its Mobile Devices group will post an operating loss for the second quarter, and it said it no longer expects the core business unit to be profitable for the full 2007 fiscal year. Motorola will report its full results in its quarterly earnings call later this month.

Sony Ericsson was one company that picked up Motorola’s slack in Europe and Asia. Though its penetration in the U.S. is still low, Sony Ericsson reported a 59% increase in Q2 phone shipments year over year and a 54% increase in profit to Euro 220 million (U.S. $303.4 million). Sony Ericsson now estimates its global market share at 9%, keeping it in the fourth slot for highest volumes behind Nokia, Motorola and Samsung.