Updated from 7:42 a.m. EDT

The world's largest cell phone maker,

Nokia

(NOK) - Get Report

, posted second-quarter earnings that met estimates, ending a lackluster first half.

The Helsinki-based cell phone giant reported pro forma earnings, excluding goodwill, amortization and nonrecurring items, of $910 million, or 19 cents a share, on sales of $6.97 billion, in line with the low end of its guidance and the analyst consensus. (International currency exchange rates fluctuated in the quarter, meaning the original 17-cent consensus estimate is now worth 19 cents.) Overall, the company's operating profit margins were 18.2%.

The sales results reflect a 6% year-over-year decline and a 1% sequential dip.

The mobile phone division, which brings in the majority of its income, hit its sales target of $5.43 billion, representing a 1% gain year-over-year, flat sequentially, with gross margins of 21.7%, as previously expected. Guidance on handset gross margins remained steady at "around 20%." Sales growth was attributed to Europe and China, with the Americas lagging behind.

The mobile unit managed to gain slightly more than 1% sequentially and year-over-year on its global market share, now "over 38%," ahead of last year's 37%.

The company, which has a history of taking down its estimates, did so again this morning, pulling down its estimates on total market volume for 2002 handset shipments to 400 million units, from 420 million units expected earlier. This follows on the heels of a similar move by No. 2 mobile equipment giant

Motorola

(MOT)

Wednesday, which also said it expected the volume to be about 400 million units, down from 420 million expectations.

The big question remains whether the company will take down these estimates again before the end of the current quarter, reflecting more bearish sentiments on Wall Street calling for flat growth to approximately 385 million units moved. "We continue to have market share concerns in the near term," wrote Bear Stearns wireless equipment analyst Wojtek Uzdelewicz in a client note this morning, pointing out that both

Samsung

and

Siemens

(SI) - Get Report

had better quarter-over-quarter growth.

Nokia's networks division, which manufacturers 2.5G and 3G equipment, again saw a steep -- but expected -- 22% drop in sales to $1.48 billion and slightly improved margins of 11.6%. That came amid a blistering downturn with few signs of relenting, as wireless carriers around the world build out their networks at a lower pace than was expected.

"Nokia continues to expect an annual decline in the GSM and overall infrastructure market in 2002," said Nokia CEO Jorma Ollila in a prepared statement. "Major operators in Europe and Asia are scheduled to start their multimedia messaging services during the second half 2002."

The company said it expects earnings to be in the 15 cents to 17 cents range for the third quarter, on sales of $7.2 billion to $7.6 billion, compared with $7 billion in the third quarter last year, a 2% to 8% year-over-year improvement. The company maintained its full-year EPS estimates of 79 cents to 84 cents, and expects sales to increase 3% to 10% in the second half of the year. Sales forecasts were in line with June's warnings that sales growth for the company as a whole will reach "up to 10%," down from April's aggressive "15% or more" predictions.

Analysts pointed out that the guidance was fairly conservative for the third quarter, below consensus range on the low end and just meeting it at the high end. "Our 15 cent to 17 cents might sound cautious," Ollila told analysts on a conference call this morning. "You might say it's slippage, I call it seasonality?the way our cycle works. Obviously being cautious about what the world is, that's what we've learned a bit in the last 18 months."

Much of the heavy lifting will come in the third and fourth quarters as the company rolls out a portfolio of new phones aimed at the replacement cycle. They include the recently launched 7650, which has a color screen, multimedia features and the ability to shoot and send pictures. It's also the third phone based on the Symbian operating system, as it begins to slowly fight off efforts by

Microsoft

(MSFT) - Get Report

to take a stake in the handset market.

Based on its updated guidance, analysts suggested that potential pitfalls lay ahead in the fourth quarter. Fourth-quarter EPS will have to achieve 26 to 29 cents in order to meet its full-year guidance, suggesting the company expects a dramatic build-up in sales. Given the current economic environment and the overall slump in the telecommunications sector -- with carriers keeping a close watch on cash flow and expenditures -- that may turn out to be a tall order for Nokia. "In the last two years, we've exited

the fourth quarter with too much in inventory," said Deutsche Bank analyst Brian Modoff, explaining that carriers are likely to manage their working capital more closely, indicating that they are likely to keep handset inventories at an all time low. "We're not likely to see as high of a jump sequentially

from the third to the fourth quarter as we've seen historically.

That adds to the challenge to Nokia's backend-loaded forecast."