The world's top cellphone maker Nokia shocked investors by taking a major writedown at its struggling networks unit and revealing a fall in its smartphone sales from the previous quarter.

Shares in Nokia, barely changed since the start of the year, fell 8 percent to 9.49 euros by 1245 GMT on Thursday after the third quarter results.

The company booked a 908-million euros ($1.35 billion) hit from its Nokia Siemens Networks joint venture, citing challenging market conditions, and dragging the group to a reported loss per share of 0.15 euros compared with expectations of a 0.

Nokia, battling aggressively with rivals Apple and RIM, also said its smartphones market share fell to 35 percent in July-September from 41 percent the previous quarter.

The scale of the smartphone share loss must give the markets pause for thought over the coming days. Dropping six points in three months is pretty stunning, said MKM Partners analyst Tero Kuittinen.

Nokia's smartphones pack more features than Apple's iPhone or RIM's Blackberry, but lack the design and brand-allure of its North American rivals.

COSTS IN FOCUS

Siemens CFO Joe Kaeser had warned at end-September his firm might have to write down its 50 percent stake in Nokia Siemens.

Nokia Siemens fell to an underlying July-September operating loss of 53 million euros from a profit of 177 million a year ago as it struggled against fierce competition from Ericsson and Huawei.

It is clear that NSN has lost market share. The top priority for NSN is restoring growth to the company's top line and reversing the market share dynamic, Nokia Chief Executive Olli-Pekka Kallasvuo told journalists on a conference call.

Nokia reported a group level net loss of 913 million euros compared with a 1.06 billion euros profit the previous year. Sales were 9.81 billion, down 20 percent.

Profit margins are under pressure ... Nokia needs to do some serious cost cutting to adjust to weaker demand, said Christian Blaabjerg, chief equity strategist at Saxo Bank.

Nokia is in the midst of cutting annual costs by 700 million euros at its handset unit, which performed slightly better than expected in the third quarter as consumer demand for mobile devices started to improve in many markets.

Nokia shares are trading some 13 times next year's expected earnings, below many of its technology sector peers as its growth prospects are seen limited.

PROBLEMS IN SMARTPHONE GROWTH

Consumer demand may be showing early signs of improvement but these results show sustained pressure on smartphone margins. Apple's iPhone is defying gravity in the high tier, said CCS Insight analyst Geoff Blaber.

Analysts expect Apple, which started to sell its upgraded iPhone in June, to be one of the rare winners in the July-September period in the increasingly crowded smartphone market. It reports on October 19.

Industry sales of more advanced models, so-called smartphones, rose 15 percent from the previous quarter, Nokia said, but falling smartphone prices are hurting top vendors.

Nokia is launching plenty of new high-end smartphone models, such as the N900 and N97 mini. But as yet there is no iPhone killer to drive a major revival in its smartphone volumes, said Neil Mawston from Strategy Analytics.

Nokia is still struggling in the U.S. smartphone market, and with competition intensifying in China as well, Nokia's battles can only get tougher in 2010, Mawston said.

HTC, the world's No. 4 smartphone brand, reported last week worse than expected results, underscoring intensifying competition and declining prices.

BlackBerry maker Research In Motion, the world's second-largest smartphone maker after Nokia, said on September 24 its profit dropped 3.5 percent in the August quarter and gave an outlook that fell short of forecasts.

(Additional reporting by Brett Young and Eva Lamppu in Helsinki, Blaise Robinson in Paris; editing by Elaine Hardcastle)

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