Finnish handset and equipment vendor Nokia spooked the market on Thursday with the announcement that net profit had dropped 4 per cent year on year during the third quarter.

Poor network sales in the Americas and declines in handset market share in EMEA and North America combined with slow growth in the WCDMA space were the elements largely to blame for Nokia’s worse than anticipated performance.

But it was not all bad news, Nokia’s consolidated net sales increased 20 per cent year on year to Eur10.1bn, while device shipments were 88.5m – well ahead of expectations. In the handset space, chief executive Olli-Pekka Kallasvuo estimates that Nokia has a 36 per cent market share, up from 33 per cent a year ago.

But as Ovum analyst Martin Garner points out, “two things are really significant in these results – the impact of not having a portfolio of thin phones and the new internet strategy.”

The high end of the market is where Nokia is particularly strong and Motorola loses significant ground, the Finnish company is also doing extremely well in the entry level, in spite of Motorola having won the high profile Emerging Market Handset tenders.

But the mid-range is a broad category and is where Nokia has traditionally made most of its profit. “Although Nokia does sell a lot of phones in this area, it is currently the main problem child for Nokia because this is where the RAZR plays and wins,” said Garner.

Ovum expects Nokia to launch a range of thin phones in the run up to Christmas.

Meanwhile, the other item of great significance, according to Garner, is the very strong focus on the internet in the Finnish company’s strategy. “The acquisitions of Loudeye and Gate5, as well as the announcement of the internet music service and Widsets, are the first visible signs of a significant shift for Nokia,” Garner said. “There will be a lot more of this in 2007,” he added.