Sony Ericsson is looking to a new line of smartphones to boost growth after a disappointing end to last year.
The company, which on Thursday posted fourth-quarter earnings well short of analyst expectations, last month launched the Xperia Arc and further launches are due next month based on Google's Android software.
But the new models are not due to hit stores in time to boost first-quarter earnings, leaving the group with an awkward gap having already had to slash prices to attract Christmas shoppers to its aging handsets.
With price pressure on old models continuing, the new launches will come too late to have significant impact on first-quarter figures at the company, a 50-50 venture of Sweden's Ericsson and Japan's Sony Corp.
We always have profitability top of mind, but I do have to admit there will be some challenges in Q1, Chief Financial Officer Bill Glasier told analysts on a conference call.
He said the company was targeting profitability in the current three-month period.
In the fourth quarter Sony Ericsson shipped fewer phones than expected and at a lower average price -- down 12 percent from previous quarter at 136 euros.
Its poor fourth-quarter performance contrasted sharply with iPhone maker Apple Inc, whose results beat forecasts this week.
It's clear Sony Ericsson had to work hard to maintain profitability, said Geoff Blaber, analyst at CCS Insight. Prices came under substantial pressure due to both competition and a product mix lacking high-tier, higher margin offerings.
Sony Ericsson Chief Executive Bert Nordberg admitted the company had underestimated the speed needed to launch new products, but said it would be quicker to the market this year.
We expect a better year than last, Nordberg said when asked about outlook for the venture's sales and profits in 2011.
Gartner analyst Carolina Milanesi said: The competition is so tough you cannot afford not to refresh your portfolio ... They need to step up their pace of product introduction.
Shipments in the quarter totaled 11.2 million, up on the previous quarter but down 23 percent on the same period in 2009.
Sony Ericsson expects modest growth in the handset market as a whole this year.
The handset market has recovered from a slump in 2009 to grow around 13 percent last year, a Reuters poll of 32 banks, brokerages and research firms showed.
Growth has been strongest in the smartphone segment -- PC-like handsets that offer Internet surfing, gaming and easy access to social networking sites like Facebook.
Sony Ericsson has also slashed costs and focused on high-end smartphones that run on the Android operating system, turning a string of quarterly losses into profit last year.
That momentum seems now to have stalled and Sony Ericsson has not kept up with more nimble rivals such as Apple, Samsung Electronics and LG Electronics.
The overriding (message) ... here will be that it's a disappointment and I think it's going to be in stark contrast to numbers we will see coming out of Samsung in particular, but also Motorola, LG Electronics and HTC, said Nicolas von Stackelberg, analyst at Macquarie Research.
Those we think are the winners currently of the smartphone boom. Apple is already there, doing very well.
Sony Ericsson made a pretax profit of 35 million euros ($47 million) on sales of 1.53 billion. Analysts in a Reuters poll had an average forecast for a pretax profit of 79.7 million euros and sales of 1.82 billion.
Shares in Ericsson dropped more than 2 percent in early trading but recovered to be 0.7 percent lower at 1103 GMT.
LG Electronics and Motorola report on January 26, with the largest phone maker Nokia due on January 27. Samsung reports on January 28.
(Additional reporting by Helena Soderpalm and Johannes Hellstrom in Stockholm; Editing by Erica Billingham and David Holmes)
($1 = 0.7425 euro)