Nokia said on Tuesday it expects to reach an operating profit margin of around 20 percent over the next one to two years from its cellphone and services business.

Shares in Nokia fell more than 4 percent on the news as many investors had expected a more upbeat profit forecast for the Finnish firm's key business, which has reached a margin of 19 percent so far this year.

Their new margin targets weren't as good as needed -- they're already on those levels, said SEB analyst Leif Pettersson.

The world's top cellphone maker, which makes more phones than its three closest rivals combined, said it sees all vendors together selling around 10 percent more phones in 2008 than this year.

Samsung Electronics, the world's No. 2 cellphone maker, last week forecast 12 percent growth for the market. Most other forecasters have been more modest with their estimates.

Nokia said it aims to raise its market share to more than the 39 percent it reached in the last quarter.

Nokia dominates the low end of the cellphone market where it benefits from economies of scale. Most other vendors are not able to offer attractive cellphones for prices below 30 euros ($44).

The Finnish firm raised its group level operating profit target to 16-17 percent in one to two years from a previous target of 15 percent. Analysts have forecast an average 15.2 percent margin in 2008 and 15.7 percent in 2009, according to Reuters Estimates.

Nokia said it saw very slight growth in the infrastructure gear market next year, and shares in Swedish Ericsson fell close to 2 percent in Stockholm.

Nokia shares have risen 78 percent so far this year, compared with almost unchanged DJ Stoxx European technology index , lifted by forecast-beating results and a new growth strategy focusing on mobile Internet services.

FREE MUSIC BET

Nokia also said it had signed a deal with the world's biggest music group, Universal, owned by French media giant Vivendi, to offer all of Universal's music free for 12 months to buyers of new music phones starting from the second half of 2008.

At the end of the offer, consumers can keep all the music they have downloaded, the companies said.

Nokia said it was in talks over similar deals with all major labels.

The free access to new music is set to hurt peer-to-peer networking, while Nokia's foray into the digital music retail business will also raise pressure on Apple.

It seems the record labels have decided to bet on Nokia as a means to add competition to Apple's dominant position in digital music, said Paolo Pescatore, analyst at research firm CCS Insight.

With Nokia poised to sell well in excess of 120 million phones in this quarter, it's a partner that record labels can't ignore, Pescatore said.

Nokia ventured into the navigation industry earlier this year with free map data and routing offers.

(Additional reporting by Niclas Mika in Amsterdam, Jerker Hellstrom in Stockholm and Amanda Cooper in London; editing by Sue Thomas and Matthew Tostevin)

Electronics