Nokia, the world's largest maker of mobile phones, reported on Thursday a sharp drop in third quarter profits, offering an early glimpse into the way the global financial crisis is feeding through to the real economy.

The Finnish company said net income dropped to €1.09bn from €1.56bn for the same period a year earlier. Net sales dropped 5 per cent year-on-year in the third quarter to €12.2bn and were down 7 per cent compared to the previous quarter of 2008.

Its shares traded sharply lower in initial reaction to the results but recovered lost ground as investors delved into the company's relatively positive prognosis for the future. They were trading at down 1.2 per cent in early afternoon trading at €11.65.

Other mobile phone handset makers are due to report results in coming days including Sony Ericsson on Friday, LG Electronics on Monday, followed by Motorola and Samsung, offering a broad glimpse the impact of declining consumer confidence on the operations of global manufacturers.

The decline is doubly troubling as Nokia had previously been able to absorb a drop in spending in developed markets in the US and Europe by relying on sales in large emerging markets such as India and Latin America.

But the third quarter results revealed sales in some of these markets are now starting to come under pressure, indicating that these markets are not decoupled from the rest of the global economy and that consumer sentiment there is also starting to weaken.

Nokia said quarter on quarter sales in the Asia Pacific region dropped 7.7 per cent and were down 28.1 per cent in Latin America. Sales were flat quarter on quarter in Europe and the US, but rose 12.5 per cent in Greater China.

Much of the market's interest will be focused on Nokia's outlook, especially after it spooked investors earlier this year when it announced the global economic downturn and weakness of the US dollar had started to slow growth.

Given the circumstances, its outlook was relatively positive, offering some reassurance to the market. It said Thursday it estimated fourth quarter industry mobile device volumes of 310m units, up 8 per cent year on year and 2 per cent sequentially.

It added it expected to have a fourth quarter global device market share of 38 per cent, down from 39 per cent in the third quarter from 40 per cent in the second quarter.

It said it expected the closely monitored average selling price of its handsets to be €72, down from €74 in the second quarter and that its devices services gross margin would be 36.5 per cent, up sequentially from 36.1 per cent.

For the broader mobile industry, Nokia said it expects device volumes of approximately 1.26bn in 2008, up from approximately 1.14 billion units Nokia estimated for 2007.

In a prepared statement, Olli Pekka Kallasvuo, chief executive, said: "As a result of our strong operational management and market position, Nokia was able to achieve solid margins and operating cash flow of €1.3bn for the third quarter of 2008. With our scale, brand, improving product portfolio and low cost structure, we believe Nokia is well positioned for the current times."