Nokia sees improved margins, smartphone outlook eyed

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Nokia Oyj's battered shares could get a boost when the firm looks ahead at next week's investor day to an expected upturn in handset margins and a more competitive smartphone offering in 2010.

The world's largest mobile phone maker uses the gathering of analysts and investors -- held yearly in early December -- to update its market view and issue forecasts for the coming year.

Twelve months ago Nokia forecast its handset unit operating profit margins for 2009 in the teens -- 13-19% -- but the company has just failed to hit that range due to the steep economic downturn.

Nokia and the rest of the cellphone industry have suffered in 2009 as consumers cut spending on new gadgets, with the more expensive end of the market seeing increasingly stiff competition.

Nokia's shares have missed the stock market recovery, dropping 19% since the start of the year -- mostly due to the company's deteriorating smartphone offering -- against a rise of 17% in DJ Stoxx European technology index, in which it is the biggest constituent.

However, demand has started to recover and analysts say Nokia should benefit.

"I don't expect much negative -- the question is how positive it will be, and whether that is enough," said Hannu Rauhala, analyst with Pohjola Bank.

On average analysts expect the cellphone market to grow 8.6 percent next year -- rebounding from a contraction of seven percent in 2009 -- with Nokia's handset unit operating profit margin seen rising to 13.5%.

'Dumbing Down' smartphones

The smartphone market boom is expected to continue next year, helped by falling prices for the more advanced phones.

"Next year Nokia will make smartphones a mass market product," said John Strand, chief executive of Strand Consult.

Underlining the rising importance of smartphones, Apple bypassed Nokia in the September quarter as the handset maker generating the largest profit, according to research firm Strategy Analytics, even though Nokia sells 15 phones for each iPhone sold.

Analysts also expect Nokia to comment on its court case in Delaware, United States, where it sued Apple for infringing 10 of its patents after the companies failed to reach a royalty deal.

Apple has until December 14 to respond to Nokia's allegations.

For the first time the company's outlook will be given by Timo Ihamuotila, who was named chief financial officer last month in a management revamp one day after the firm reported its weakest quarterly result ever.

Ihamuotila, relatively unknown to investors, has had a long career in Nokia, and in his last position as the global sales chief he worked closely with the firm's largest customers, the big handset operators.

Richard Windsor, technology specialist at Nomura, said this could affect the nature of the forecasts.

"If he gives his view then there is a strong incentive to be conservative, as beating expectations in his first year would boost his standing in the market," Windsor wrote in a note.