Nokia profit in line, but market view pummels stock

Children ride their bicycles past a billboard near the entrance of the new Nokia plant in Jucu village near Cluj, about 450 km (280 miles) northwest of Bucharest February 11, 2008. January-March underlying earnings at Nokia Oyj , the world's biggest maker of mobile phones, rose in line with expectations, it revealed on Thursday, but its view of the market in 2008 dented its share price.

HELSINKI (Reuters) - Nokia said on Thursday it expected the cellphone market would fall in euro terms this year due to the weakening U.S. dollar, knocking more than 13 percent off its shares.

The world's largest handset maker reported underlying first-quarter profit rising as expected, but a bigger-than-expected fall in its average selling price for phones also weighed on the stock.

The Finnish company cut its forecast for the cellphone market value due to changes in the currency market, but repeated that a boom in emerging markets would lift shipment volumes by 10 percent from 2007.

The euro hit a new high of 1.5983 against the dollar on Thursday. The European common currency has strengthened about 10 percent against the dollar in 2008 and is up 18.2 percent over the last 12 months.

"This (currency) move has been dramatic. It is unprecedented," Nokia Chief Financial Officer Rick Simonson told Reuters.

"According to our estimates, the market is expected to clearly grow in value terms on a constant currency basis," Chief Executive Olli-Pekka Kallasvuo said on a conference call with analysts.

Nokia's average selling price for phones in the first quarter also disappointed the market, falling to 79 euros from 83 euros in the previous quarter, while analysts had on average expected 81 euros.

Shares in Nokia ended down 13.6 percent at 18.12 euros, their biggest one-day fall since April 2004, and almost single-handedly dragged the DJ Stoxx European technology sector index down 6.4 percent.

"The possibility for some economic slowdown in Europe going forward is what we have been afraid of. Nokia's main market, Europe, is slowing down, and the company now gives clear evidence of that," said Carnegie analyst Janne Rantanen.

MARKET WEAKNESS

Sony Ericsson, whose forte is its relatively expensive Walkman music and Cybershot camera phones, warned on January-March profits last month due to weakening European markets, and after losing the number four spot in the market to LG Electronics.

Sony Ericsson's comments came hard on the heels of a warning by chipmaker Texas Instruments of weaker demand for chips for high-end 3G phones, raising fears that the global economic slowdown was starting to crimp the handset industry.

Before one-off items, Nokia's earnings per share for January-March rose to 0.38 euros from 0.26 euros in the same period of 2007, though larger-than-expected one-off costs pushed reported EPS to 0.32 euros, missing analysts' forecasts.

Nokia, which has a strong lead in emerging markets including China and India, sold 115.5 million phones in the quarter, up 27 percent from a year earlier, and more than its three closest rivals combined.

Nokia said the figures were boosted by 40 percent growth in Asia and 63 percent in Latin America, but sales in North America fell 46 percent to 2.6 million phones, despite management's efforts to drive sales in the region.

"With global handset revenues coming under increasing pressure in 2008, then the high-value North American market is one Nokia simply cannot afford to ignore," said Neil Mawston, director at research firm Strategy Analytics.

Nokia Siemens Networks, Nokia's joint telecom gear making venture with Siemens, reported a smaller-than-expected 74 million euro loss, but Nokia said it now expected to see no growth in the telecom gear market in 2008.

"The change from the previous estimate of 'very slight growth' for this market primarily reflects the negative impact of the recently weakened U.S. dollar," the company said in a statement.

(Reporting by Tarmo Virki, Additional reporting by Agnieszka Flak, Sakari Suoninen and Sami Torma; editing by Will Waterman)