July 20 (Bloomberg) -- Nokia Oyj, the world's largest maker of mobile phones, said second-quarter profit rose 43 percent, the biggest increase in more than three years, on growth in China and India and sales of pricier handsets in Europe.

Net income rose to 1.14 billion euros ($1.44 billion), or 28 cents a share, from 799 million euros, or 18 cents, a year earlier, the Espoo, Finland-based company said in a statement to the Helsinki stock exchange today. Sales rose 22 percent to 9.81 billion euros from 8.06 billion euros.

Chief Executive Officer Olli-Pekka Kallasvuo, who took over June 1, is increasing sales by introducing cheaper handsets aimed at China and India, while offering multimedia phones with music players and cameras in Europe and the U.S. Nokia's profitability is under pressure as stiffer competition from Motorola Inc. and Samsung Electronics Co. pushes average prices lower. Motorola yesterday posted profit and sales that beat analysts' estimates.

``Despite the nice stories about growth in China and India, it's clear the competition in all segments, not just emerging markets, is fierce,'' said Theo Maas, who helps oversee $300 million at the ABN Amro IT Fund in Amsterdam, including Nokia and Motorola shares.

Shares of Nokia rose 6 cents, or 0.4 percent, to 15.62 euros in Helsinki, bringing the gain this year to 1.1 percent. On earnings days in the past two years, Nokia's shares have risen as much as 11 percent and dropped as much as 18 percent when results have exceeded or missed analysts' estimates.

Motorola shares surged as much as 13 percent to $21.75 today, and traded at $21.24 as of 11:57 a.m. New York time. The stock is still down so far this year, having lost 15 percent before today.

North American Woes

The Finnish company said its market share in the second quarter was 34 percent, down from 35 percent in the first quarter and up from 33 percent a year earlier.

``They probably lost some market share'' to Motorola in the U.S., said Jan van der Hout, a fund manager at Van Lanschot Asset Management in Den Bosch, Netherlands, which oversees $2.5 billion.

North American revenue rose 5 percent to 674 million euros, while unit sales fell 13 percent in the region, suggesting more expensive phones were sold.

A cancellation of a ``significant'' handset order in the U.S. had a ``big impact'' on the company's market share, Kallasvuo said on a conference call today. The business relationship with the customer is now ``back to normal,'' he said.

``I will not rest until the situation in the U.S. is satisfactory,'' Kallasvuo said. ``We have several initiatives ongoing with different customers'' in the U.S. that will ``make it possible for us to improve our position.''

Sales in Europe rose 13 percent to 3.64 billion euros.

Emerging Markets

Sales in China rose 44 percent to 1.24 billion euros, while revenue elsewhere in the Asia-Pacific region, including India, gained 47 percent to 2.06 billion euros.

``Nokia's focus on sales in emerging markets is higher than for other phone makers,'' said Ioannis Papassavvas, a fund manager at Deutscher Investment Trust in Frankfurt, which oversees about $65 billion. ``This is a double-edged sword: on the one hand side 400-euro phones don't sell in Southeast Asia; on the other hand, those markets give you a lot of volume, and volume brings production costs down.''

The average price of a Nokia phone fell to 102 euros in the quarter from 103 euros the previous quarter, Nokia said.

Nokia shipped 78.4 million phones in the second quarter. It has introduced phones that cost less than $50 in growth markets such as India, while introducing more advanced phones such as the E61 e-mail phone to challenge Motorola's Q and Research in Motion Ltd.'s BlackBerry. Nokia is also selling slimmer phones such as the 6126 and 8800 to compete with Motorola's half-inch Razr.

Multimedia Phones

Operating profit at the multimedia division, which makes phones with music players and browsers, more than doubled to 304 million euros, with sales up 37 percent to 1.89 billion euros.

Operating profit at Nokia's unit making the most basic handsets, the largest division, expanded 24 percent to 979 million euros and sales gained 21 percent to 5.88 billion euros.

Nokia had a gain of $341 million last quarter from a settlement with the Turkish government following the country's sale of Telsim Mobil Telekomunikasyon Hizmetleri AS. In the year- earlier period, Nokia had gains of 54 million euros.

Net income was seen at 1 billion euros on sales of 9.64 billion euros, the medians in a Bloomberg survey of 13 analysts.

Market Growth

Global handset sales rose 26 percent to 235 million units in the quarter, Strategy Analytics said in an e-mailed statement today. The researcher said it still expects 1 billion handsets to be sold this year, an increase of 22 percent from 2005.

Motorola's market share by units rose 4 percentage points in the second quarter to 22.1 percent, the highest since 1998, from a year earlier, Strategy Analytics said. Nokia's market share gained 0.8 percentage point to 33.3 percent, the researcher said.

``We expect Nokia's device market share in the third quarter 2006 to be approximately at the same level sequentially,'' Nokia said in the statement. ``Nokia expects industry mobile device volumes in the third quarter 2006 to be up sequentially, although to be less than the second quarter 2006 sequential increase.''

Kallasvuo, 53, aims to lift the operating profit to 17 percent of sales within two years from 13.6 percent in 2005. That margin peaked at 19.8 percent in 1999.

While sales at mobile-phone and multimedia units exceeded analysts' forecasts, profitability at both lagged analysts' estimates. The operating margin at mobile-phone unit was 16.7 percent, while analysts expected 17.3 percent. Multimedia's margin was 16.1 percent, lagging the 16.7 percent analysts expected.

Competitors' Earnings

Samsung's second-quarter profit fell 11 percent to 1.5 trillion won ($1.6 billion) after it cut phone prices to compete with Nokia. Its handset shipments in Europe fell 26 percent from the first quarter, Albert Lin, an analyst at American Technology Research, wrote in a note after Samsung's July 14 report.

Motorola yesterday reported second-quarter profit that beat analysts' estimates. It shipped a record 51.9 million handsets, spurred by sales of the Razr phone, the Q e-mail device and low- cost handsets in China and India.

Motorola's revenue advanced 29 percent to $10.9 billion, beating the $10.1 billion estimate of Lehman Brothers analyst Tim Luke, the top-ranked analyst according to Institutional Investor magazine. Profit before one-time items of 32 cents exceeded Luke's prediction of 28 cents.

Before today, Nokia shares had risen 0.7 percent this year, while shares of Schaumburg, Illinois-based Motorola, the second- biggest handset maker, had slid 15 percent. Suwon, South Korea- based Samsung had lost 9.3 percent in the period.

To contact the reporter on this story: Ville Heiskanen in Helsinki at vheiskanen@bloomberg.net

Last Updated: July 20, 2006 11:58 EDT