PREVIEW-Nokia Q3 profits seen hurt by weaker economies

* Expected to report a sharp drop in Q3 EPS y/y

* Impact of economic slowdown on consumer spending in focus

* Growing competition in emerging markets

HELSINKI, Oct 8 (Reuters) - Nokia Oyj NOK1V.HE, the world's biggest cellphone maker, is expected to report a sharp drop from a year ago in its third-quarter profits as weakening economies hit the sums consumer have to spend on gadgets.

The Finnish group is expected to report third-quarter earnings per share of 0.32 euros, down from 0.40 euros a year ago, according to the average forecast in a Reuters poll of analysts. [ID:nL7196416]

On Sept. 5 Nokia warned its third-quarter market share would fall and said it expected the mobile device market in 2008 to be hit by weak consumer confidence in many markets. It also cited tough competition in developing markets, its stronghold.

Nokia is expected to have sold 120 million phones in the quarter, up only 7 percent from a year ago, as falling sales on developed markets weigh on growth in emerging markets.

Nokia has reported growth figures above 20 percent for several quarters.

“Volume is the most critical issue in the report. How much will the financial crisis impact consumer demand,” said eQ Bank analyst Jari Honko.

Analysts expect Nokia’s phone sales to fall 2 percent from the previous quarter as the firm has shied away from the toughest price battle, hoping to protect its profits.

On Sept. 5 Nokia stuck to its forecast of overall market volume growth of at least 10 percent and said it was still targeting an increase in its device market share over 2008 as a whole.


Nokia has the strongest position in emerging markets, holding more than half of the market in Africa and in many large Asian countries.

“The competition is speeding up in emerging markets, and Nokia’s dominance there is now deteriorating. I’m looking forward to hear more about that competitive environment and also further concerns about the general economic outlook now expanding to Europe,” said Evli analyst Mikko Ervasti.

Handset sales volumes in emerging markets surpassed developed markets in 2005, and last year 63 percent of phone sales were in emerging markets, according to Strategy Analytics.

Some analysts have cut their 2009 cell-phone market growth estimates to as much as half, saying growth would be hampered as consumers delayed buying new devices due to deepening economic concerns. [ID:nN07478669]

On average analysts expect handset market volumes to grow 6.7 percent next year, compared with the 7.5 percent growth expectation in a similar poll conducted three months ago.

While industry executives often say phones are the last thing consumers will give up to save money, analysts are now citing lengthening phone replacement cycles and weakening economies around the world for their weaker sales estimates.

“2009 will be a very difficult year for the industry on the back of the general economic slowdown,” Ervasti said.

“On the emerging market side, where first devices are still being bought, that will continue, but the developed markets and the high-end phones will be under pressure.”

Samsung Electronics 005930.KS and Nokia itself have cut phone prices over the summer months, and analysts said most of the vendors were involved in a price battle.

Analysts expect Nokia’s operating profit margins at its core Devices & Services unit to fall to 18.5 percent in the quarter, still superior to rivals; margins at Samsung and LG were below 15 percent in the second quarter, while Sony Ericsson and Motorola are struggling to make profits.

Nokia phones’ average sales price is expected to fall only slightly to 73.4 euros from 74 euros in the previous quarter, helped by the stronger U.S. dollar.

Nokia will release its July-September numbers on Oct. 16, a day before Sony Ericsson. Motorola will report on Oct. 30. (Additional reporting by Agnieszka Flak, editing by Will Waterman)