Investors will focus on cellphone makers' comments about the strength of the recovery in demand when they report their December quarter results this week and next.

The mobile phone industry suffered badly in 2009 as recession-hit consumers around the world cut spending on new gadgets, but demand for new phones started to grow again in the fourth quarter as economies recovered.

It will be the first quarter of growth since third quarter 2008 and it should formally signal the end of the global handset recession, said analyst Neil Mawston from Strategy Analytics.

Analysts on average expect the cellphone market to grow 9.3 percent in 2010, a Reuters poll of analysts showed.

The world's No.1 cellphone maker Nokia forecast last month for market volumes to rise around 10 percent in 2010.

Demand continued to recover in the fourth quarter but this remains an extremely tough market with a widening gulf between the winners and losers, said Geoff Blaber from CCS Insight.

HTC HARBINGER?

HTC, the world's fourth largest smartphone brand, reported weaker-than-expected fourth-quarter results on Jan 6, weighed by increasing competition and rapidly falling prices for the feature-jammed gadgets.

Pressure on the average sales prices is going to be of the outmost importance in 2010 thanks to the proliferation of smartphone competition, said Tero Kuittinen, analyst with MKM Partners.

I'm convinced that strong volume growth is already priced in. This means that first quarter guidance is going to be very important, Kuittinen said.

All top cellphone makers release their December quarter earnings within one week -- starting from Sony Ericsson on Jan 22. Apple will report on Jan 25, LG Electronics on January 27, Nokia and Motorola on Jan 28 and Samsung on January 29.

Nokia is expected to report a 27 percent drop in fourth-quarter earnings per share, dented by recession-hit demand, a Reuters poll of 37 analysts showed.

Ailing Sony Ericsson, a 50-50 venture of Japan's Sony Corp and Sweden's Ericsson, is expected to report another steep loss for the quarter as the company struggles to renew its lackluster phone portfolio.

I am more inclined to believe they can overperform than underperform, simply because we are going from such a bad situation to a situation where something is happening at least, said analyst Alexander Peterc from Exane BNP Paribas.

Motorola, who has struggled in past few years like Sony Ericsson, is expected to report earnings per share rising to $0.07 from $0.01 in the previous quarter -- the highest level since it benefited from the Razr phone model.

Analysts said Apple -- the top profit generator in the industry -- likely sold up to 9 million iPhones in the December quarter.

Further expansion in the iPhone's sales channel bolstered sales, but 2010 needs a bigger twist to the iPhone recipe in order to maintain momentum, said CCS' Blaber.

KOREAN SMARTPHONE CHALLENGE South Korean mobile phone makers Samsung and LG -- the world's No 2 and No 3 -- are both seen reporting higher phone sales from a year ago, but deepening competition in smartphones and the higher won currency are clouding their profits. Samsung Electronics is likely to report about a 7 percent operating profit margin from its telecom business, on a consolidated basis, down from 10 percent in the third quarter.

Despite higher marketing costs, strong sales of touchscreen models supported its profits, analysts said. For Samsung, the key in 2010 will be how to respond to Apple's dominance in the smartphone market, said James Song, an analyst at Daewoo Securities. LG is expected to see its mobile phone operating profit margin dropping to around 2 percent in the fourth quarter from 8.8 percent in the third quarter, weighed down by marketing costs, inventory disposal and investments to beef up the smartphone business.

LG's phone business margin can stabilize when its smartphone lineup is strengthened, probably after the second quarter, said Park Seong-min, an analyst at Kyobo Securities in Seoul.

LG said on Jan 13 it sold about 33 million mobile phones in October-December versus 25.7 million handsets sold a year earlier. LG said it aimed to boost its mobile phone sales volume by 20 percent in 2010 and enhance its smartphone lineup.

(Additional reporting by Simon Johnson in Stockholm; Editing by Jon Loades-Carter)

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