It's hard to know whether the team at Sony Ericsson Mobile Communications will be more pleased or concerned following the device vendor's fourth-quarter and full-year 2010 report. (See Sony Ericsson Reports Q4 .)

On the plus side, it reported its fourth consecutive quarter of profits -- albeit just €8 million (US$10.8 million) -- and managed to raise its all-important average selling price (ASP) to €146 (US$197) for the full year 2010, up nearly 23 percent from 2009's ASP of €119 ($161).

That rising ASP is down to the company's decision to focus more on the smart-phone market and less on cheaper devices, a strategy that has helped boost Sony Ericsson's gross margin for 2010 to 29 percent from 15 percent in 2009. (See Sony Ericsson Rises & Falls, Sony Ericsson's Mixed Bag and Sony Ericsson Ramps Its ASP.)

That, though, means sacrificing sales volumes. The company sold 43.1 million devices in 2010 compared with 57.1 million in 2009, so it's losing overall market share. The company estimates it had four percent of the global handset market last year in terms of units shipped, down a percentage point from 2009. Others, meanwhile, have been growing. (See ZTE Handset Sales Hit 90M.)

And the company had a particularly disappointing fourth quarter, during which it sold only 11.2 million devices, lower than expected. Sony Ericsson put this down to "a lack of new product launches during the quarter."

Why this matters
Sony Ericsson's fourth-quarter sales trend needs to be reversed if the company is to avoid slipping back into the red during the current quarter. However, the company has unveiled just one new device so far this year, and some market reports suggest it will be late March before further new models are released. (See Sony Ericsson Intros Xperia arc.)

In addition, market research indicates that the majority of global handset market growth may favor Sony Ericsson's rivals. Pyramid Research expects that "basic ultra-low cost handsets, inexpensive smartphones, and Android-based devices will see the most demand in 2011" as the market grows to more than 1.4 billion devices. (See Cheap Smartphones Are Smart Choice in 2011 .)

While Sony Ericsson is one of the vendors to have adopted the Android operating system, it is just one of many, and increasing demand for ultra-low cost devices and inexpensive smart phones may not suit Sony Ericsson's marketing strategy. And in its key European market, the competition might be about to get even tougher. (See Chinese Conquer European Smartphone Space in 2011.)



Sony Ericsson managed to wrench itself back into profitability in 2010 with a change of strategy and some deep cost-cutting. Now it needs to figure out if its 2010 strategy is good enough for 2011.

For more
The smart-phone sector really took off in 2010, and is set for bigger things this year.

— Ray Le Maistre, International Managing Editor, Light Reading