Nokia (NOK) the world's biggest mobile phone maker, reported fourth-quarter earnings roughly in line with expectations, but said margins continued to suffer as it sold more low-priced phones.

Nokia said demand was strong in the last three months of 2005, boosting its sales and helping it to recover more of the market share it had lost a year ago.

Demand in China and North America helped it sell 84 million phones in the last three months of 2005, 27 percent higher than the year before and about 34 percent of the overall market.

But operating profitability suffered, slipping to 13.2 percent in the fourth quarter, compared with expectations of 14.1 percent in a Reuters poll of 35 analysts.

Average selling prices (ASPs) fell to 99 euros, against analysts' expectations of 100, despite a revamped line-up of models with improved cameras and business functions such as e-mail, intended for customers willing to pay more. The company expects its ASPs in the first quarter to hold stable, at best.

"The average selling prices have come down more than expected, and that of course affects the margin," said Petri Arjama, analyst at Handelsbanken.

The Finnish group reported fourth-quarter earnings per share of 0.25 euros, in line with expectations in a Reuters poll of 35 analysts. Net sales were 10.3 billion euros, up 9.3 percent from a year ago and above the average forecast of 10 billion.

"We are leading the rest of pack," Chief Executive Jorma Ollila told CNBC television.

"We have the highest margins to anybody, and that continues to be the case, so we are really quite happy with the way things are going and the way the fourth quarter went, and that gives us an excellent position to continue next year."

OVERALL MARKET GROWTH

Nokia also said it would continue to buy back its own shares and announced plans to spend up to 6.5 billion euros ($8 billion) on the program, up from a previously announced 5 billion, to buy up to 405 million shares.

Nokia has recovered some of the ground lost in previous years to rivals selling more popular phones, including folding handsets, but much of its increased market share came from selling cheaper phones in developing markets, where it has traditionally been the strongest player.

Nokia said it expected its market share in mobile devices to be flat or slightly higher in the first quarter, and repeated its forecast for more than 10 percent growth in global phone shipments in 2006, from a revised 795 million in 2005.

"I think the shipment number is quite strong, but the statement by the company that they only won 1 percentage point of market share sequentially is rather weak," said Thomas Langer, analyst at WestLB.

Rivals Motorola Inc. (MOT) and Sony Ericsson earlier reported strong demand in the Christmas quarter, with unit shipments up 40 and 28 percent, respectively.

Nokia said it expected moderate growth in the mobile infrastructure market in euro terms in 2006, and forecast increased year-on-year network sales in the first quarter, though showing a seasonal decline.