Nokia, the world's biggest mobile handset maker, expects the cellphone market to recover faster next year than analysts are forecasting, but falling handset prices would cap profitability growth.
Nokia said handset market volumes would grow about 10 percent in 2010, more than analysts' consensus forecast of 8.6 percent, while its market share would be unchanged.
The mobile devices market is stabilizing, Nokia's new finance director Timo Ihamuotila told investors. The market growth will happen in market segments and geographies where Nokia is strong.
Nokia forecast its handset unit's underlying operating profit margin would be 12-14 percent next year, improving only slightly from levels seen earlier this year as phone prices continue falling, albeit at a slower speed.
I think consensus was probably gravitating toward the higher end of that guidance. So that is a slight negative, said Sal. Oppenheim analyst Nicolas Von Stackelberg.
Nokia's phone unit had margins of well above 20 percent during boom times, and Ihamuotila said the margins could rise beyond 12-14 percent in coming years.
Nokia's shares were down 1.8 percent at 8.75 euros at 1550 GMT, underperforming a 0.4 percent fall for the DJ Stoxx European Technology Index.
The stock market recovery has passed Nokia's shares by. They have dropped 20 percent since the start of the year, mostly due to disappointment with its smartphone offering, while the DJ Stoxx European technology index, in which it is the biggest constituent, has risen 17 percent.
(For a graphic on Nokia share price vs. Apple and RIM, click http://graphics.thomsonreuters.com/129/EZ_NKSP1209.gif )
Nokia said its network equipment arm Nokia Siemens aims to win more market share next year in a flat market, with its operating profit margin to reach at best 2 percent.
We have three targets for 2010: execution, execution, execution, Nokia's Chief Executive Officer Olli-Pekka Kallasvuo said in a speech at an investor meeting.
Kallasvuo said the company had cut costs at its cellphone unit by an annual 1 billion euros.
Nokia and the rest of the cellphone industry have suffered as recession-hit consumers cut spending on new gadgets, and the more expensive end of the market has seen increasingly stiff competition.
Nokia said, however, that it expected the fall in its average selling prices (ASP) to slow in 2010, helped by its strong position in the lower end of the market, where there is limited room for prices to fall further.
Guiding for slower ASP erosion comes as little surprise, particularly given looming cut-throat margin pressure on smartphone pricing, said Ben Wood, analyst at CCS Insight.
Nokia's CEO Kallasvuo said its Symbian operating system had reach and flexibility like no other platform, and the company plans to push smartphone prices down while simultaneously growing margins.
It is encouraging to see Nokia coming out fighting for Symbian. 2010 is a make-or-break year for Nokia's smartphone platforms in the face of fierce competition from Apple, Google Android and RIM, Wood said.
Nokia's closest rival Samsung Electronics gave an upbeat forecast for 2009 mobile phone sales earlier this week due to sharp growth in touch-screen models.
Nokia said it was rapidly increasing the number of touch-screen models in its portfolio.
NEARING MILLION DOWNLOADS PER DAY
The Finnish firm has started to invest more in Internet services in recent years, seeking to counter falling handset prices and increased competition in smartphones from the likes of Apple and Blackberry-maker RIM.
Nokia's services head Niklas Savander said downloads at its online software marketplace, Ovi Store, are approaching a million a day.
The company is targeting 300 million active services users by the end of 2011, while generating revenues of at least 2 billion euros in 2011.
I am more sure now than I was a year ago that we are going to achieve our 2 billion target in 2011, Savander said.
(Additional reporting by Brett Young, Eva Lamppu in Helsinki, Johannes Hellstrom in Stockholm; Editing by Dan Lalor/Will Waterman)