Nokia on Thursday cut the profit outlook for its key phone unit as the world's top cellphone maker struggles in the market for more expensive handsets, sending its shares sharply lower.

Nokia still lacks a top-range model to challenge Apple's iPhone three years after its launch. It's last high-end hit phone was the N95, which was unveiled in 2006.

Everyone wants an iPhone and their competitors have now made it impossible for them, said David Buik, partner at BGC Partners.

Shares in Nokia were 12.7 percent lower at 9.85 euros by 1036 GMT, dragging the STOXX Europe 600 Technology Index <.SX8P> 3.4 percent lower.

Apple's quarterly results blew past Wall Street expectations on the back of record iPhone sales earlier this week, and the company gave a strong revenue forecast, sending its shares to an all-time high.

The smartphone market continued to expand through the economic downturn, helped by cheaper models, and research firm Gartner has forecast it will grow a whopping 46 percent this year.

Nokia is benefiting from growth among cheap smartphones, with analysts at Goldman Sachs estimating Nokia has a 70 percent market share in that segment.

Average sales price of a Nokia smartphone dropped 17 percent from the previous quarter to just 155 euros ($208.4).

Nokia also delayed the renewal of its Symbian software -- seen as crucial to improve its position in the high-end of the market -- to the third quarter from second quarter.


Underlying first-quarter earnings per share rose 40 percent from a year ago to 0.14 euros ($0.19), marking the first annual rise since the second quarter of 2008 but missing the average forecast of 0.15 in a Reuters poll of 43 analysts.

Earnings were boosted by massive cost cuts as Nokia slashed thousands of jobs last year, aiming to reduce costs at its key handset unit alone by more than 700 million euros to counter recession-hit demand.

January-March sales at the market leader, which makes one in three phones sold globally, grew 3 percent from a year ago, also rising for the first time since the second quarter of 2008.

($1=.7439 Euro)

(Editing by Elaine Hardcastle)