Sony Ericsson reported progress in its turnaround plan on Friday as losses met expectations, but the mobile phone venture offered a cautious view on 2010 market conditions.
Handset makers and chip firms globally had a grim time through 2009 as the global downturn made consumers hold back on buying new gadgets.
Sony Ericsson has also been hampered by its weakness in the smartphone segment -- the only bright spot in a shrinking market -- leaving it to play catch up with rivals Apple, Nokia, LG Electronics and Samsung.
Sony Ericsson, owned by Sweden's Ericsson and Japan's Sony Corp, reported a quarterly pretax loss of 190 million euros ($270 million pounds). That nearly matched a forecast in a Reuters poll for a 194 million euro loss and would have been better had the firm not taken larger than expected restructuring charges.
The firm said its turnaround plan, focused on cost cutting and new phones with advanced mobile Internet and networking functions was now gaining traction and the overall market should show slight growth in 2010.
While analysts were positive about the transformation in Sony Ericsson's phone portfolio, the outlook was a letdown.
I think that is slightly disappointing because other people are looking at significantly stronger growth, including Nokia, said Nicolas von Stackelberg, analyst at Sal Oppenheim.
Nokia, the world's biggest handset maker, said in early December it expected the market to grow 10 percent in 2010, though competition would cap profitability.
Analysts on average expect the cellphone market to grow 9.3 percent in 2010.
Sony Ericsson, unprofitable since the second quarter of 2008, said cost cutting and its new smartphones had helped boost the gross margin to 23 percent against a forecast 17.7 percent.
The average selling price for Sony Ericsson's phones was 120 euros, higher than analysts' forecast.
On the positive side we see that the new phones ... are well received well by the customers and they are really selling more high-end phones, and that is raising the average sales price quite a bit -- a lot more than I had expected, Sydbank analyst Morten Imsgard said.
The result ex restructuring charges is actually a lot better than I expected.
The full benefit of the cost cuts will come through in the second half of the year, but competition will remain tough.
Market leader Nokia said this week it would offer users free satellite navigation on its cellphones, following the lead taken by Google.
Of course it is a strong competitive move by Nokia that they want to give this (navigation system) away for free on some of their models, said Sydbank's Imsgard.
It will also put pressure on Sony Ericsson to develop new software offerings and new ways to attract customers.
Ericsson's other joint venture, ST-Ericsson, also showed improving fourth-quarter figures thanks to restructuring and an improving market.
ST-Ericsson core operating losses shrank to $50 million though the chip-making venture said the overall market would see a seasonal decline in the first quarter this year.
Ericsson shares were up 2.3 percent at 0930 GMT, outperforming the wider Stockholm market.
The Tokyo market, where Sony trades, was closed.
(Additional reporting by Brett Young in Helsinki, Veronika Ek, Mia Shanley, Johannes Hellstrom, Oskar von Bahr, Helena Soderpalm and Sven Nordenstam in Stockholm; Editing by Hans Peters)