Research company Gartner, based in Stamford, Conn., said 1.75 billion mobile handsets had been sold, a 1.7 percent decline from 2011.
"Tough economic conditions" had been partly responsible for the decline in sales, Gartner analysts said.
The data also suggested a weakening demand for feature phones -- lower-end devices with limited functionality -- led to the drop, although smartphone sales had seen a 38.3 percent year-on-year gain over the fourth quarter.
The lead in smartphones continued to be a see-saw battle between Apple and Samsung, researchers said.
"There is no manufacturer that can firmly lay claim to the No. 3 spot," Gartner principal research analyst Anshul Gupta told the BBC.
"Their direct competitors, including those with comparable products, struggle to achieve the same brand appreciation among consumers."
The overall decline in sales marked the first time the market had contracted since 2009, Gupta said.