April 17 (Bloomberg) -- Nokia Oyj, the world's biggest maker of mobile phones, reported first-quarter profit that missed analysts' estimates and said the value of the global handset market will shrink in euro terms this year.

Nokia dropped as much as 11 percent in Helsinki trading, the biggest slide in almost four years. Net income rose 25 percent to 1.22 billion euros ($1.95 billion), missing the 1.38 billion-euro average of 14 analyst estimates compiled by Bloomberg. Sales increased 28 percent to 12.66 billion euros.

The dollar's decline and slower U.S. and European economic growth will reduce the value of the mobile-phone market in 2008, Chief Financial Officer Richard Simonson said in a Bloomberg Television interview. Simonson also predicted selling prices will fall as a result of the dollar. About half of Nokia's revenue is in dollars or closely linked currencies.

``Average selling prices are falling and the question is what will happen to volumes in the future,'' said Jari Honko, an analyst at eQ Bank in Helsinki who rates Nokia ``accumulate.'' The market forecast ``is the negative news of the day.''

Chief Executive Officer Olli-Pekka Kallasvuo increased Nokia's market share to 40 percent last year by selling handsets for less than $50 and pricier models with satellite navigation at the expense of rivals including Motorola Inc. Nokia's stock lost 24 percent in the first three months of the year, the most since the second quarter of 2004, on concern sales growth in developed markets such as Europe will slow.

Currency Effect

The dollar has lost about 15 percent against the euro in the past year, reducing the value of revenue in euros. At constant currencies, Nokia still anticipates the global handset market will grow this year, Simonson said.

In today's statement, Nokia cited ``the negative impact of the recently weakened U.S. dollar, the general economic slowdown in the U.S., and possibly going forward some economic slowdown in Europe'' for cutting its forecast for the value of the market.

Nokia reiterated the global handset market will rise 10 percent by units this year and the company aims to increase its market share. Average selling prices will continue to fall.

Nokia fell 2.01 euros to 18.95 euros at 2:57 p.m. in Helsinki. Before today, the stock had lost 21 percent this year, valuing Nokia at 79.6 billion euros, compared with a 20 percent slide in the Dow Jones Europe Stoxx Technology Index. Last year was the best for the stock since 1999, with a 71 percent gain.

``All forms of uncertainties are being punished harshly in this market,'' said Jan Ihrfelt, an analyst at Swedbank in Stockholm.

Pensions, Closed Plant

Earnings per share rose to 32 cents from 25 cents a year earlier. Earnings per share excluding one-time items gained to 38 cents from 26 cents a year earlier, beating the 37 cents predicted by analysts.

Nokia booked a net 152 million euros in charges from pension liability transfers, 81 million euros to close a German plant and 100 million euros for cutting jobs at Nokia Siemens Networks.

The Finnish company will close its Bochum, Gemany, factory by the end of June and transfer most of the production to its new plant in Romania, where costs are lower. Nokia agreed on a 200 million-euro package with unions this month to help the 2,300 German workers facing unemployment. The company also has manufacturing plants in Finland, Hungary, Asia and Latin America.

Unit Shipments

Nokia's global market share in the first quarter rose to 39 percent from 36 percent a year earlier, trailing the 40 percent predicted by analysts. The company forecast its market share in the second quarter will rise sequentially.

The company shipped 115.5 million devices in the quarter, an increase of 27 percent from a year earlier, and a decline of 13 percent sequentially. The first quarter is typically the weakest by shipments. The average selling price of its phones fell to 79 euros from 83 euros sequentially, and dropped from 89 euros a year earlier on increased sales in emerging markets, Nokia said.

Analysts had anticipated shipments of 115 million units and an average selling price of 80 euros.

Nokia's market share tops the combined share of its three closest rivals, Motorola Inc., Samsung Electronics Co. and Sony Ericsson Mobile Communications Ltd., according to researcher Strategy Analytics. Schaumburg, Illinois-based Motorola and South Korea's Samsung report earnings next week.

Emerging Markets

In emerging markets, Nokia has increased its market share after Motorola withdrew from competing on price as the strategy led to losses last year. Nokia derives more than half of its revenue from outside Europe and North America, while China and India are its two single biggest markets.

To stay ahead of competitors, Nokia grouped Internet services such as music, map and game downloads under the Ovi brand and agreed with Vivendi SA's Universal Music to sell phones with a year of unlimited access to millions of tracks.

In October, the company offered $8.1 billion for U.S. digital mapmaker Navteq Corp. The purchase is currently under review by European Union competition authorities.

Nokia also forecast global networks industry growth will be ``flat'' this year in euro terms, down from an earlier prediction of ``very slight'' growth.

Nokia Siemens Networks, the venture with Siemens AG, had an operating loss of 74 million euros on sales of 3.4 billion euros. That compares with fourth-quarter operating profit of 78 million euros and revenue of 4.58 billion euros. Nokia reiterated it will achieve 2 billion euros in cost savings annually by the end of 2008 by cutting 15 percent of the venture's workforce.

To contact the reporter on this story: Juho Erkheikki in Helsinki at jerkheikki@bloomberg.net.

Last Updated: April 17, 2008 07:59 EDT