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Sony Ericsson has carried out a successful effort in managing expectations amid the nervousness of mobile investors - although its third quarter figures showed a huge loss, and a far cry from the successes of 2008, the troubled joint venture still managed to perform better than the markets had expected.

The handset maker reported revenues of €2.8bn ($3.75bn) and a net loss of €25m ($33.5m), slightly better than analysts had anticipated on both sides. The company also sold more handsets than expected, a total of 25.7m, and held on to its market share of 8%. The markets traditionally set huge store by cellphone market share figures, though perhaps this is questionable given the tribulations of Motorola since it decided to chase share at the dramatic expense of margin in 2006-7. So while Nokia sustained a fall in its global share, from 40% to 38% in Q3, but kept its margin and average selling price very buoyant considering industry conditions, Sony Ericsson saw its ASP fall to €109 ($146) from €116 ($155.50) in the previous quarter.

The ASP figure remains high by industry standards - Nokia, with a far broader range, currently reports ASP of €72 ($96.57) - but the decline highlights SE's massive dilemma, which was troubling it even before the economic crisis started to hit the mobile business. It scored its successes of 2005-7 by focusing on high end and midmarket smartphones, heavily branded with the Sony Walkman and Cybershot logos and tied into advanced music and imaging features. Now SE plans to build on this strong foundation by emulating Nokia and tying in web services such as its PlayNow music and media offering. However, such an approach will make it hard to extend the 8% market share, or even defend it against the more broad ranging nearest rival, LG. This led the joint venture to take the high stakes move last year of trying to push into the volumes of the emerging economies, with investment in Indian activities and a partnership with low cost handset maker Sagem.

It now seems likely that SE will pull back from that strategy, at least for now, as analysts increasingly fret about its fall in margins and its losses. Analysts at Dresdner Kleinwort reflected the views of many when they expressed strong concern at "deterioration in gross margin" from 23% in Q2 to 22%, down from 31% a year earlier, and "the rapid decline in ASP". However, the midmarket is likely to be the toughest area in 2009, with any growth driven by superphones or developing markets, and SE faces rising challenges in its midrange heartland from Nokia, RIM, Apple and the Koreans.

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