Nokia Corp.'s operating profit sank more than 96 percent in the first quarter on reduced sales and plunging margins as telecommunication service providers took steps to lower their inventories, putting pressure on prices at leading mobile phone manufacturers.

The company said in a statement today that it is now in a better position to see into future demand and expects stronger performance in its mobile handset division during the second half of the year when sales are expected to pick up strongly.

Nokia, the world's biggest mobile phone maker by unit shipment, said operating profits fell to 55 million euro, or $71.3 million, in the first quarter, from 1.5 billion euro in the first quarter of 2008.

Revenue during the same period fell to $11.8 billion, down 27 percent, from $16.1 billion in the comparable 2008 quarter. The largest decline occurred in the company's devices and services division, which experienced a 33.4 percent drop in sales to $7.8 billion versus $11.8 billion in the year-ago quarter.

Analysts were expecting Nokia's results to be even weaker than reported due to fears the ongoing global economic malaise could severely hurt sales as consumers pull back on all but the most essential purchases.

The company's stock price rose almost 2 percent on the news after Nokia said it is now in a better position to forecast future demand. The company also hinted that its telecom service customers were farther along in their inventory depletion activities, which could trigger increased sales during the second half of the year.

"The inventory already in the sales channels decreased substantially during the first quarter due to extensive destocking by operators and distributors," said Olli-Pekka Kallasvuo, Nokia's CEO 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 in the second quarter."

Nokia's share of the mobile handset market slipped during the first quarter to 37 percent from 39 percent in the year-ago quarter. The company attributed the drop to lower sales in Latin America, Middle East, Africa, Asia-Pacific and China. It also lost share in the high-end mobile phone market.

The company estimates total global handset shipment decreased during the first quarter to 255 million units, down 14 percent from the 2008 comparable period while Nokia's own unit shipment fell to 93.2 million, down 19 percent.

Nokia and its rivals in the wireless handset market continue to face significant pricing pressures as telecom service providers negotiated greater concessions in order to attract consumers in a weak sales environment. Nokia said the average selling prices of its products fell 18 percent in the first quarter to approximately $82.5 from $100.3 per unit in the first quarter of 2008.

The company is optimistic about the second half of the year, saying it expects overall demand to pick up during period. However, total mobile handset shipment for 2009 will still decline about 10 percent from 2008, the company said.