July 31 (Bloomberg) -- Sharp Corp., Japan's biggest mobile- phone maker, reported first-quarter operating profit dropped 14 percent, missing analysts' estimates on slowing handset sales in the nation.

Operating profit, or sales minus the cost of goods sold and administrative expenses, fell to 36.4 billion yen ($337 million) in the three months ended June 30, from 42.3 billion yen a year earlier, Osaka-based Sharp said today. Profit missed all six analyst estimates in a Bloomberg survey.

The company, which gets 53 percent of sales from Japan, cited sluggish domestic consumption and a slowing global economy for its first profit drop in three quarters. Sharp predicts sales of its Aquos televisions will increase through the year, making up for the shortfall in handset revenue and helping the company meet its forecast for annual profit to rise.

``Sharp's future earnings largely depend on demand for TV, handsets and LCD panels as the company has fewer business categories compared with larger rivals,'' said Kota Ezawa, an analyst with Nikko Citi Holdings Inc. in Tokyo with a ``sell'' rating on Sharp. ``The company may be on the brink of missing its full-year profit forecast if the business environment worsens.''

Sharp shares rose 0.6 percent to close at 1,506 yen before earnings were reported. The benchmark Nikkei 225 Stock Average gained 0.1 percent.

Lower Sales

First-quarter net income increased 2.8 percent to 24.9 billion yen, boosted by an 18.5 billion yen gain from share sales, while revenue fell 6 percent to 747.9 billion yen.

The World Bank said in June global economic growth will probably slow to 2.7 percent this year from 3.7 percent in 2007 because of rising food and fuel prices and losses from the subprime-credit market.

Sales in Sharp's main audio visual and communication equipment division, which includes mobile phones and liquid- crystal-display televisions, fell 18 percent to 335.4 billion yen. Profit dropped 64 percent to 4.56 billion yen.

Handset sales at the company, which supplies to NTT DoCoMo Inc., KDDI Corp., and Softbank Corp., Japan's three wireless- phone operators, declined 38 percent to 129 billion yen in the quarter, Vice President Toshishige Hamano said.

``There is no doubt that sales of LCD TVs, both in volume and value, will rise through the full year, Hamano said at a briefing in Osaka. He said Sharp will cope with the sales decline in handsets by expanding its lineup in China, the world's largest mobile-phone market by users.

Sharp, also Japan's biggest LCD maker, said panel sales climbed 34 percent to 159.6 billion yen on demand for screens used in televisions. Profit gained 17 percent to 20.3 billion yen.

The company maintained its forecast from April for net income to rise 3 percent to 105 billion yen in the year ending March 2009. Sales are projected to climb 5.3 percent to 3.6 trillion yen and operating profit will probably increase 6.2 percent to 195 billion yen.

To contact the reporter on this story: Hiroshi Suzuki in Tokyo at hsuzuki5@bloomberg.net; Junko Hayashi in Tokyo at juhayashi@bloomberg.net.

Last Updated: July 31, 2008 05:27 EDT