Last month it had said the market would fall 5 percent or more in 2009.

Finland's Nokia reported underlying fourth-quarter earnings per share of 0.26 euros, missing the average forecast of 0.30 euros in a Reuters poll, but within a wide range of estimates.

Nokia said it aims to cut its key handset unit annual costs by 700 million euros ($909.4 million).

"We are taking action to reduce overall costs and to preserve our strong capital structure. This is clearly our top priority in the current economic environment," Chief Executive Olli-Pekka Kallasvuo said in a statement.

Nokia's earnings were a latest sign of the formerly buoyant mobile phone industry hitting a wall and facing its toughest year ever as consumers rein in spending in the face of the slowdown. (Reporting by Tarmo Virki)