Nokia sees mobile phone sales shrinking faster

But the company said that in the meantime fourth quarter earnings will suffer, as it has not been able to cut costs quickly enough in response to the rapid deterioration of the handset market in the last few weeks.

Analysts expect Nokia to fare better than its smaller rivals in the downturn.

"Despite the challenging environment, Nokia remains best positioned ... thanks to their economies of scale and channel strategy," said Gartner analyst Carolina Milanesi.

Nokia cut its forecast a day after the world's fifth and sixth largest handset makers, LG Electronics Inc and Research in Motion Ltd, warned on sales and profit growth. ID:nL3479637

"The smaller handset manufacturers in general have it more difficult -- Motorola, Sony Ericsson and smaller players -- and it is not surprising that Nokia sees its market share increasing," said Michael Schroder, head of research at FIM in Helsinki.

"If the weakness continues past summer, it is probable that some would get out of the business," he said.

Motorola Inc and Sony Ericsson, a venture of Japan's Sony Corp and Sweden's Ericsson, are already struggling to make a profit.

Nokia said it expects also to win back market share in smartphones, where it has lost ground to RIM and Apple Inc. Simonson said that the smartphone market should grow in 2009, but he did not give a specific estimate.

Nokia also lowered its forecast for the 2009 telecommunications network equipment market, saying it would fall in euro terms 5 percent or more. Shares in the world's largest mobile telecom equipment maker Ericsson closed 1 percent lower on the news.

(Additional reporting by Sakari Suoninen; Editing by Rupert Winchester and Elaine Hardcastle)