PREVIEW-Slight mobile handset market recovery seen in Q3

* Nokia Q3 due Oct. 15, LG on Oct. 21, Samsung on Oct. 30

* Investors eye consumer demand

By Tarmo Virki and Marie-France Han

GENEVA/SEOUL, Oct 7 (Reuters) - Mobile phone makers were expected to report slight improvements in quarterly sales volumes, as economies start to recover after an unprecedented slump in handset sales.

Analysts expected handset sales to have grown 4.5 percent in the July-September quarter versus the April-June quarter, according to a Reuters poll of 36 analysts. Third-quarter sales were forecast down 9.7 percent year-on-year. [ID:nL7532304]

"There are signs of improving consumer demand, but it is not clear we are out of the woods yet," said Geoff Blaber, analyst at British-based research firm CCS Insight.

Analysts expected handset vendors to see a good rise in sales in the holiday-shopping season in coming months, especially as handset sales slumped at the end of 2008.

"In the fourth quarter we are not talking yet about a normal seasonal uptick. The key question is consumers' behaviour," said Jari Honko, analyst with eQ Bank in Helsinki.

Nokia was expected to a report clear improvement in sales when compared to the previous quarter, but third-quarter earnings per share were seen sliding to 0.09 euro, according to a Reuters poll of 37 analysts. [ID:nL7534869]

Its network equipment unit was seen struggling the most, with analysts saying it was time for Nokia to announce further restructuring.

Nokia Siemens slashed annual costs by 2 billion euros ($2.9 billion), cutting around 9,000 jobs, after its 2007 merger.

"Nokia Siemens cannot avoid further cost cuts. If they continue as they are they are on the road to destruction," said eQ's Honko.

BOOMING SMARTPHONES

Sales of more advanced models, so-called smartphones, were expected to continue to rise quickly in the quarter, but falling smartphone prices are starting to hurt top vendors. HTC (2498.TW), the world's No. 4 smartphone brand, reported worse than expected third-quarter results on Tuesday, underscoring intensifying competition and declining prices in the fast-growing sector. [ID:nTP206011]

Third-quarter revenue fell more than 10 percent, as consumers hit by the economic slowdown looked to cheaper models.

"The smartphone space is a growing segment but there is a huge pressure on prices. We are seeing high-end features moving into the mid-tier -- that's the battle RIM is having now," said CCS's Blaber.

BlackBerry maker Research In Motion (RIM.TO) (RIMM.O), the world's second-largest smartphone maker after Nokia, said on Sept. 24 its profit dropped 3.5 percent and gave an outlook that fell short of forecasts, hitting its shares. [ID:nN24466680]

One of the third-quarter winners was Apple (AAPL.O) which started to sell its upgraded iPhone in June, analysts said.

PRESSURE IN KOREA

The world's second and third-biggest handset makers, Samsung Electronics (005930.KS) and LG Electronics (066570.KS), were expected to post strong unit sales but increased marketing costs were seen hurting profit margins.

The pain was set to deepen further in the fourth quarter, when marketing costs and slowing average prices are likely to drive margins down to 4-5 percent for LG Electronics.

Samsung gave a stronger-than-expected quarterly earnings forecast for the group on Tuesday but did not comment on its units, leaving investors worried a fast recovering won and competition were starting to cut into profit.[ID:nT89846]

While Samsung is expected to have done well both in the United States and Europe in the third quarter, there were more concerns for LG.

"LG Electronics likely suffered from a lack of new high-end models in the third quarter, especially in the U.S. market," said Harrison Cho, an analyst at KB Investment and Securities.

He said fourth-quarter results could be even worse due to tightening cellphone subsidies among operators.

But Jay Yoo, analyst at Korea Investment & Securities, remained bullish on LG's ability to dust itself off in 2010.

"Unlike Samsung, which had many new models, LG didn't have new models to launch in the third quarter, but that was a known fact. Margins will likely drop to around 5 percent in the fourth quarter. But the drop will be an exceptional one, due to aggressive marketing rather than a bad product mix."

Lee Min-hee, an analyst at Dongbu Securities, said Samsung did well in Europe, where other manufacturers struggled.

Sony Ericsson, the handset vendor with largest exposure to European markets, was seen posting a third-quarter pretax loss of 274 million euros, slightly better than the 283 million it lost in the previous quarter.

Nokia, on Oct. 15, will be the first major cellphone maker to report its July-October results, with Sony Ericsson to follow the next day. LG Electronics was scheduled to report on Oct. 21, Motorola MOT.N on Oct. 29, and Samsung Electronics on Oct. 30. (Additional reporting by Simon Johnson in Stockholm; Editing by Dan Lalor) ($1 = 0.6802 euro)