updated 7/16/2004 3:25:53 PM ET 2004-07-16T19:25:53

Nokia shares plunged 10 percent Thursday after the Finnish handset maker reported narrow second-quarter earnings and warned its profitability would remain threatened by increased competition, lower prices and a lack of popular new models.

Although the report matched analyst expectations, the world's biggest mobile phone maker's shares were tumbling on the Helsinki Exchange. Nokia shares were down 10 percent to $12.50 in afternoon trading.

Nokia earned $865 million, or 18 cents a share, in the April-June period, up from euro624 million, or euro0.13 cents a share, a year earlier. The earnings included a one-off item worth $111.5 million, Nokia said.

Revenue fell to $8 billion from euro7 billion in 2003.

For the first six months, Nokia reported a profit of $1.9 billion, or 40 cents a share, down slightly from the euro1.6 billion in the year-ago period.

Sales fell 5 percent to euro13.3 billion for the six months, down from euro13.8 billion.

Chief Executive Jorma Ollila said European and U.S. phone markets "remained challenging," but that gains in emerging markets were on the rise, particularly in Russia, China, and Brazil.

Nokia has been losing market share to other manufacturers throughout the year. In a move to strike back at competitors' mid-range and low-end models, Nokia in June unveiled a new design look in phones — including a selection of clamshell phones — modeled after competitors' styling.

Ollila said sales of the new models that are already out on the market exceeded expectations.

"Toward the end of the quarter, out market share started stabilizing in many of the Western European markets," he said.

Ollila said the company is still trying to inject trend appeal to its phone selection.

"We will continue to focus our resources and actions on offering a broad product portfolio that best matches the usability, design, technology and customization needs of consumers," Ollila said.

He also said recent price cuts to regain market share had boosted sales, but dropped margins.

Nokia forecast that a total of 600 million mobile phones will be sold throughout the world in 2004. Nokia estimated it had sold 45.4 million phones in the second quarter and held 31 percent of the market.

The company has said it expects revenue to pick up toward the third and fourth quarters as it introduces more new models.

The Finnish company, whose mobile phone sales account for 80 percent of total revenue, has focused increasingly on the handset market.

Nokia, based in Espoo, just outside the Finnish capital, has sales in 130 countries with 53,000 employees.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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