Nokia, the world's biggest mobile phone company, has posted strong profits but a worryingly large drop in sales.

The Finnish firm made an operating profit of 1.26bn euros (�808m; $1.25bn) during the three months to end-June, a rise of 11% year on year.

But that earnings growth was achieved on sales of 6.9bn euros, down 6% on a year before and well below analysts' forecasts.

Although Nokia was quick to trumpet its increasing dominance of the mobile handset market, where its global share rose to 38% during the quarter, investors remained unimpressed.

Nokia shares closed 4.6% lower at 13.70 euros in Helsinki.

Hope springs eternal

During the first half of 2002, Nokia's sales fell 9%, and analysts warned that the firm, if it was to end the year on a positive note, had become ever more reliant on new technology boosts.

"You have to assume a really bumper Q4 for Nokia to get to their full-year [earnings] target," said Susan Anthony of Credit Lyonnais.

Nokia has set itself a daunting target

Like its smaller rivals, Nokia hopes that new feature-rich phones, which run on the emerging third-generation mobile networks, will spark renewed demand among cautious consumers.

Although Nokia has suffered over the past year as growth in the global mobile phone market slowed, rival firms have suffered more acutely.

As a result, Nokia has gained market share despite slowing sales, mainly at the expense of Sweden's Ericsson, which has slumped in the world rankings.

Still sanguine

Undeterred by the mixed results, Nokia said it was sticking to its forecast for 10% sales growth for the full year.

To hit this target, Nokia will have to attract revenues of 20.3bn euros in the second half of the year, a rise of almost 29%.

Nokia cut its target for second-quarter sales twice in the run-up to Thursday's announcement, in what some analysts saw as a deliberate attempt to sour expectations.

Nokia's bottom line has been massaged, however, by its active attempts to cut costs.

It cut almost 7,000 staff last year, despite having been generally more reluctant to sack workers than its rivals, and has trimmed overall costs by more than 10% year on year.