Oct. 15 (Bloomberg) -- Nokia Oyj, the world’s biggest maker of mobile phones, had its first net loss since the company began reporting quarterly in 1996, hurt by costs related to a joint venture with Siemens AG and weaker demand.

The net loss totaled 559 million euros ($834 million), after a profit of 1.09 billion euros a year earlier. Sales declined 20 percent to 9.8 billion euros, missing the average estimate of 10.03 billion euros in a Bloomberg analyst survey. Analysts had anticipated a profit of 367 million euros.

The shares fell the most in three months. The Espoo, Finland-based company took a goodwill writedown of 908 million euros on its Nokia Siemens Networks venture and said the unit’s market share will drop more than expected this year as rivals slash prices. The company forecast an unchanged market share of 38 percent for handsets in the fourth quarter as consumers shun Nokia’s N97 smartphone in favor of Apple Inc.’s iPhone.

“Networks looks like an outright disaster,” said Alexander Peterc, a Paris-based analyst with Exane BNP Paribas who has an “underperform” rating on Nokia shares. “Sales are dramatically below expectations.”

Nokia fell 11 percent to 9.18 euros in Helsinki, the biggest drop since July 16, giving the company a market value of 34.4 billion euros.

Nokia Siemens

If Siemens were to follow Nokia in writing down the entire remaining goodwill in Nokia Siemens Networks, it would result in a charge of about 1.6 billion euros. Siemens booked a capital gain of 1.6 billion euros in 2007 related to the creation of the venture, according to its annual report. The figure corresponds to the goodwill that Siemens carries on the joint venture.

Nokia Siemens Networks, which is consolidated in Nokia’s results, had previously booked operating losses of more than 1.6 billion euros over 2007 and 2008 as it struggled against carrier spending cuts and competition from new entrants in the network- equipment business.

Nokia said it will stick with the venture. The company now expects sales in the unit’s industry to drop 5 percent this year in euro terms. The company had earlier forecast a decline of 10 percent for the market as a whole.

“We continue to support Nokia Siemens Networks actions to improve its performance,” Chief Executive Officer Olli-Pekka Kallasvuo said in the statement.

The company said adjusted operating margin at its Devices & Services unit is expected to rise one percentage point or more in the fourth quarter compared with the same period a year before. The margin was 11.4 percent in the third quarter, the company said, contracting from 18.6 percent a year earlier.

‘Revenue Miss’

“It’s not a great report,” said Ben Rogoff, who helps manage about $2 billion including Nokia shares at Polar Capital Technology Trust Plc in London. “With Apple set to increase its presence in Europe and the N97 going into the channels, it was a good chance for them to really show what they could do, and the bottom line is they didn’t, and there was a revenue miss.”

Kallasvuo raised his expectation for industry shipments, saying they will fall 7 percent this year. The previous forecast was for a 10 percent decline. Nokia’s adjusted operating margin for devices will increase sequentially by at least one percentage point in the fourth quarter, the company said.

The company sold 16.4 million smart phones, it said. Last quarter’s smart-phone sales were 16.9 million.

‘Underperformance’

“The report showed good resilience on mobile-device margins, chiefly from cost cutting which can only take Nokia so far,” Exane BNP Paribas’s Peterc said. “The underperformance at the high-end continues to worry everybody.”

Sales of the N series multimedia phones were 4.5 million in the quarter, the company said, less than the 4.6 million reported in the previous three-month period. Nokia sold 4.4 million of the E series, consisting of business-oriented models that compete with Research In Motion Ltd.’s BlackBerry, compared with 4.7 million reported last quarter.

Nokia unveiled a scaled down version of the N97 touchscreen device in the quarter as it readied the N900, its first phone using a new software platform.

To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

Last Updated: October 15, 2009 12:51 EDT