The Japanese-Swedish group, now the sixth-biggest player in the global market, said that in the three months to December it made a net profit of just €8 million ($10.8 million) on sales down 13 percent at €1.53 billion.
While the net profit was a vast improvement over the €167 million loss posted in fourth quarter 2009, it missed analyst estimates polled by the Dow Jones Newswires, which averaged €68 million.
The company's fourth quarter sales also fell far short of analyst expectations of €1.75 billion.
The company explained in its earnings statement that its fourth quarter sales were "somewhat constrained by a lack of new product launches during the quarter."
Following the news, Sweden's Ericsson saw its stock price shed 0.39 percent to 76.10 kronor ($11.47) in early afternoon trading on a Stockholm stock exchange down 1.09 percent.
For all of 2010, the picture was a bit brighter, with a net profit of €90 million ($121 million), after a net loss 836 million in 2009.
However, full-year sales were down seven percent to €6.29 billion.
In its efforts to return to profit, Sony Ericsson has over the past year laid off some 4,000 employees and has refocused its business on smart phones based on the Android platform developed by Google.
Last year "was a turnaround year for Sony Ericsson. Our four consecutive quarters of profit reflect the success of our shift towards an Android-based smartphone portfolio," company president and chief executive Bert Nordberg said in the earnings statement.
The mobile phone maker estimates it last year accounted for four percent of the global market of 1.2 billion phones sold and six percent in terms of value.
Sony Ericsson, which in 2010 shipped 43.1 million phones, said it "forecasts modest growth in units in the global handset market for 2011."
"It's a disappointment on all levels," Redeye telecom analyst Greger Johansson told AFP, pointing out that the company was mainly hurt because "they didn't have new phones during the (fourth) quarter."
Sony Ericsson also suffered from the "strong competition" in the sector and "currency effects," he said.
"Their strategy is right but it's not sure they're going to make it because they have big competitors also with good Android phones," Johansson said, adding that a verdict on the company will "have to wait for a quarter of two because they have interesting phones coming."
In terms of volume, the booming mobile phone market remains dominated by Finland's Nokia, which boasts the market leader title since 1998, followed by Korean firms Samsung and LG, then Apple, Canadian BlackBerry maker RIM, and finally Sony Ericsson, several third quarter analyst studies showed.