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For the period from October to December, Ericsson registered a net profit of 1.15 billion kronor (130.8 million euros, $170 million), compared with 4.32 billion a year earlier.
Following the announcement, Ericsson's share price plunged by 14 per cent on the Stockholm stock exchange, which was down 0.9 per cent in mid-morning trade.
The quarterly earnings were "really bad", Alandsbanken analyst Lars Soderfjell told Dow Jones Newswires.
"The big negative surprise is the weak performance for Ericsson's networks business unit, where sales have fallen brutally," he said, adding: "This is primarily a result of weak sales in North America."
Network sales fell by nine per cent to 33.3 billion kronor in the fourth quarter. For the full-year 2011, sales rose by 17 per cent.
"For the full year 2011, we had a strong sales growth and an increase in net income. In the fourth quarter, however, we saw weaker development in networks, as well as an expected gross margin impact from a changed business mix with more coverage projects, modernisation projects in Europe, and a higher services share," chief executive Hans Vestberg said in a statement.
In the fourth quarter, overall sales climbed by 1.4 per cent to 63.7 billion kronor while gross margin slipped from 34.7 per cent in 2010 to 30.2 per cent in 2011, Ericsson said.
Analysts surveyed by Dow Jones Newswires had forecast sales of 67.8 billion and a gross margin of 34.2 per cent.
The quarterly earnings were heavily impacted by weak results for its joint ventures ST-Ericsson and Sony Ericsson.
For the full year 2011, sales increased by 12 per cent to 226.9 billion and net profit rose by 9.4 per cent to 12.2 billion.