July 16 (Bloomberg) -- Nokia Oyj dropped the most in five years after competition from the iPhone and the BlackBerry forced the world’s biggest maker of mobile phones to reduce forecasts for market share and profitability.

The market share will be little changed this year, compared with a previous forecast of an increase, Nokia said in a statement today. The operating margin in the main division will be little changed in the second half from the first, when it was 11.3 percent. The Espoo, Finland-based company earlier predicted the margin would be in the “teens.”

Nokia still anticipates the global handset market will shrink about 10 percent in 2009 because of weaker economies and consumer spending. Nokia has encountered more competition in high-end phones, where Apple Inc.’s iPhone and Research In Motion Inc.’s BlackBerry models have attracted buyers.

“It takes a while to turn around handset portfolios and they are struggling at the moment particularly to get their high-end product correct,” said Stuart O’Gorman, an investment manager at Henderson Global Investors Ltd. in Edinburgh who oversees $1.2 billion in technology stocks including Nokia. “At some stage Nokia can pull itself out, but it may take longer than people are hoping for.”

Nokia plunged 1.63 euros, or 15 percent, to 9.47 euros, the most since April 2004. Before today, the stock was unchanged this year.

Margin Pressure

The second-half non-IFRS operating margin in the main devices and services unit will be at about the same level as in the first half, Nokia said. The devices business is run by Kai Oeistaemoe and services by Niklas Savander.

“Competition is increasing in the smartphone area as many participants rush into one of the few growing markets,” Chief Executive Officer Olli-Pekka Kallasvuo said on a call with analysts today. Nokia had 41 percent of the smartphone market in the second quarter, unchanged from a year ago.

Second-quarter net income fell to 380 million euros, or 10 cents a share, from 1.1 billion euros, or 29 cents, a year earlier. Sales slid 25 percent to 9.9 billion euros. Analysts predicted profit of 361 million euros on sales of 10.1 billion euros, according to the average estimates in a Bloomberg survey.

The Finnish company shipped 103.2 million phones in the quarter, a 15 percent drop from a year earlier. The average selling price was 62 euros, down from 74 euros a year earlier. The drop in average prices was “primarily due to general price pressure and a higher proportion of sales of lower priced products,” Nokia said.

Market Share

Nokia estimates its mobile device market share in the second quarter was 38 percent, down from 40 percent a year earlier and up from 37 percent in the first quarter. The company said it lost market share in Latin America, the Asia-Pacific region and North America from a year earlier.

“We think the share is going to be about constant in the next quarter, but even more than that, we’re going to focus on getting the most value out of every one of those sales,” Chief Financial Officer Rick Simonson said in a Bloomberg Television interview today.

Sony Ericsson Mobile Communications Ltd., the world’s fifth-largest handset maker, today reported a 43 percent drop in unit shipments from a year earlier and posted its fourth straight quarterly loss.

“Competition remains intense, but demand in the overall mobile device market appears to be bottoming out,” Kallasvuo said in the statement.

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

Last Updated: July 16, 2009 12:02 EDT