Sales in the final quarter dropped to €1.29 billion, a decline of 18.8 percent from €1.59 billion the previous quarter and of 15.7 percent from €1.53 billion in the fourth quarter of 2010.
"Our fourth quarter results reflected intense competition, unfavourable macroeconomic conditions and the effects of a natural disaster in Thailand this quarter," chief executive Bert Nordberg said in a statement.
Sales dropped 17.2 percent overall in 2011.
Restructuring charges of €93 million in the final quarter contributed to the poor results, but even excluding those charges operating margin plunged to minus 10 percent.
"Fourth quarter sales were negatively impacted by macroeconomic challenges in advanced economies contributing to weaker holiday sales, and certain component shortages from the flooding in Thailand in late October and early November 2011," the company said.
"In spite of these challenges, throughout 2011 we've shifted our business from feature phones to smartphones, and our Android-based smartphone sales in the quarter increased by 65 percent year-on-year," Nordberg said.
The number of units shipped in the fourth quarter dropped to 9.0 million however, from 9.5 million in the third quarter and 11.2 million in the final quarter of 2010.
The average selling price declined to €143 in the fourth quarter of 2011 from the €166 in the third quarter.
Sony Ericsson was created in 2001, combining the then unprofitable handset operations of Swedish telecom equipment maker Ericsson and Japanese consumer electronic maker Sony to eventually become the sixth-biggest player in the global market for mobile phone handsets.
But in October, the companies announced they were ending the decade-old join venture, with Sony planning to buy Ericsson's 50 percent stake in Sony Ericsson for €1.05 billion.
Because the sale hasn't yet officially been completed – the deal is expected to be completed by late January or February – Sony Ericsson's losses have also taken a 1.1 billion kronor ($161 million) bite out of Ericsson's fourth quarter profits.