Nokia Pays Price for Growth

Finnish phone giant sees solid growth, but margins aren't as robust.
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Nokia

(NOK) - Get Report

sees another robust mobile phone market with sales of 1.21 billion units next year, a 10% growth pace.

But the Finnish handset giant isn't squeezing as much profit out of the device business as analysts hoped.

During its Capital Markets Day in Amsterdam Tuesday, Nokia says its phone profit margins will be around 20% for the next year or two. That is an improvement over the 19% operating margin so far this year, but narrower than the 21% range some analysts had been looking for.

The company also forecast its overall operating margin to be 16% to 17% over the next year or two, up from the year-ago target of 15%.

Nokia has had success selling lower-cost phones in fast growing markets like India and China, but that product shift to cheaper phones has dampened the average selling price per phone. The company says this so-called ASP will slightly decline due to heavy sales in developing markets and competitive price cutting.

Rivals like

Motorola

(MOT)

are pushing hard to chip away at Nokia's lead in the cheap phone markets, meanwhile Asian rivals like

Samsung

,

LG

and

Sony Ericsson

have been winning favor with sleek designs in markets like Europe and the U.S.

But Nokia doesn't see any end to its dominance. The company predicts it will add market share next year, building on its roughly 36% slice of the world's mobile phone business.

Nokia shares, which have risen 100% over the past year, dropped $1.07 to $39.17 in premarket trading Tuesday.