Competition Curdles Nokia Net

The handset king adds market share, but the bottom line suffers.
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Nokia

(NOK) - Get Report

shares dropped 8% early Thursday after the handset giant missed earnings estimates, citing cutthroat competition in the fast-growing wireless market.

The Helsinki-based company posted a 25% sales gain and raised its worldwide mobile device sales forecast to 760 units from the previous 740 million. But the company's earnings came in at 18 euro cents a share, which equates to around 22 U.S. cents, compared to a 25-cent Thomson First Call analyst consensus estimate.

For the second quarter ended last month, Nokia made 799 million euros, up from the year-ago 695 million. Sales rose to 8.06 billion euros from 6.46 billion a year earlier.

Like rival

Motorola

(MOT)

, which posted a strong quarter Tuesday, Nokia said it gained market share in the latest period, pushing its share of the handset market to an estimated 33%. But unlike Motorola, which sold some 5 million of its pricey metal-clad Razr phone, Nokia was stuck selling cheaper phones into developing markets, which punished profits. What's more, the company said it expects to see more of the same for the rest of the year.

"As this growth came primarily from emerging markets where low-end products predominate and pricing pressures are currently intense, industry average selling prices continued to edge downwards," CEO Jorma Olilla says. "This was certainly the case for Nokia in the second quarter, which in turn impacted our profitability. We currently believe these trends will continue for both the industry and Nokia for the remainder of the year."

Nokia said pricing pressure was hitting its wireless infrastructure business as well.

Early Thursday, Nokia shares were down $1.55 at $16.31.