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Nokia's net profit falls 90 percent

The bad news isn't over yet for the top mobile handset maker, but the company says the bottom may be near.

If you were wondering how bad things have gotten for the mobile handset market, just take a look at Nokia, the world's largest maker of cell phones.

The company on Thursday reported a 90 percent fall in first-quarter net profits as the global recession took a big bite out of demand for mobile devices.

For the first quarter, which ended March 31, Nokia said that net profits fell to 122 million euros ($161.3 million). A year earlier the company reported net profits of 1.22 billion euros. Analysts had expected the company to report net profits of about 306 million euros.

The company's sales fell to 9.27 billion euros from 12.66 billion euros last year. This was also below analyst expectations, which were counting on sales of around 9.80 billion euros.

Nokia 5800 XpressMusi
The first quarter was hard on profits for Nokia, but the company found some cheer in sales of its touch-screen 5800 XpressMusic device. Nokia

Nokia said that it shipped about 93.2 million handsets during the quarter, a decline of 19 percent from a year earlier and down roughly 18 percent compared to the fourth quarter.

"The inventory already in the sales channels decreased substantially during Q1 due to extensive destocking by operators and distributors," Nokia Chief Executive Olli-Pekka Kallasvuo said in a statement. "This adversely impacted our sales volumes in the quarter. However, it has also resulted in the demand picture becoming more predictable as we enter the second quarter."

The company reiterated that it expects sales to fall at least 10 percent this year based on 2008 levels. But much of the decline is expected in the first half of the year. The company said that it expects sales volumes in the second quarter to be flat or slightly up from what it saw in the first quarter.

The company also said that it has held its 37 percent market share, which it had predicted in January. But pricing on individual handsets fell to 65 euros from 71 euros during the previous quarter.

The sharp decline in sales and net profit is a direct result of the financial meltdown that has plagued the world market over the past two quarters. And as the economy begins to recover, Nokia's fall is likely to bottom out, too.

But now the company has other problems. While it has managed to hold onto its overall market share, the company is still losing ground at the high end of the market to companies such as Apple, with its iPhone, and Research In Motion, with the BlackBerry. And competition is only expected to intensify as others, like Palm, enter the market with new devices.

That said, Nokia says it is seeing great success with its "budget smartphone," the touch-screen 5800 XpressMusic. The company claims it shipped 2.6 million units during the first quarter. The device has a touchscreen and is specifically designed as a music player.