Mobile equipment firm Ericsson is to pull out of handset making and end its co-operation with Sony if the pair's mobile phone joint venture does not achieve good results in a year.

Sony Ericsson, owned 50-50 by each company, was created in October last year to salvage the loss making handset units of both firms.

But an Ericsson spokesman has told news agency Reuters that the company will not pour any more capital into the joint venture unless it sees quick results.

Although the Swedish mobile network company said that manufacturing handsets is still part of its core business, the news is seen as hinting at a wider retreat from the currently unprofitable production of handsets.

Ericsson is the world's biggest producer of mobile networks, but wants to return to profit sometime in 2003 amid sagging demand for its products.

Sony Ericsson was supposed to be profitable in the first year of its operations, but made an $86.02m loss for its last three-month period, and Ericsson said that it is not expected to return to the black this year.

Figures from research firm Gartner Dataquest showed that Sony Ericsson sold five million phones in April-June worldwide, with market share falling to 5.4 per cent from 7.7 per cent for the same period a year ago.

To eat into market leader Nokia's position, the firm plans to release four lower-end phones from this autumn hoping to build on the success of its T68i colour screen handset.

A Sony spokesman explained that the company's position on the handset venture had not changed and that it is fully committed to making it a success.

Both companies intend to invest €500m by October 2003, but Sten Fornel, chief financial officer at Ericsson, warned recently that the firm is prepared to make only limited investment next year and none at all for the rest of 2002.