Strong demand for smartphones, particularly in the United States, is helping Carphone Warehouse overcome tough economic conditions, it said as it nudged up its full-year earnings forecast.

Chief executive Roger Taylor told Reuters on Tuesday sales of mobile phones based on Google's Android software had been the highlight of Christmas trading, while smartphones were becoming more popular in the market for prepay phones, which augured well for future growth.

"A good product cycle is outweighing the economic headwinds," he said, adding interest in tablet computers like Apple's iPad could also sustain demand this year.

Retailers across Europe and the United States are worried rising commodity prices and steps to cut government debt, like higher taxes, could weigh heavily on consumers.

However, firms selling must-have products continue to thrive, as highlighted by luxury group Burberry, which also nudged up full-year earnings expectations on Tuesday.

Carphone, Europe's biggest mobile phone retailer, said earnings for the year ending March would be at the top end of a range of 13.5 to 14.0 pence a share.

The group, which owns 50 percent of a venture with U.S. electricals retailer Best Buy as well as a 47.5 percent stake in Virgin Mobile France, said revenues at European stores open at least a year rose 0.7 percent in the 13 weeks to January 1, its fiscal third quarter.

That was just below analysts' average forecast of a 1 percent rise, according to a company poll, with a 2.3 percent increase in Britain offset by a weaker performance elsewhere in Europe, particularly in Spain.

Connections at U.S. joint venture Best Buy Mobile were up 33.6 percent, above the forecast increase of 25 percent, and Carphone said its share of full-year profit from that business would be 90-100 million pounds, compared with its previous estimate of 85-95 million.

"Carphone remains our top pick in mid-cap retail, combining high growth, zero capex U.S. expansion through Best Buy Mobile and a stable category-killer European core benefitting from an exceptionally strong smartphone and tablet cycle," Citi analysts said in a research note.

At 9:33 a.m. Carphone shares, which have more than trebled in value since demerging from telecoms group TalkTalk in March, were up 0.1 percent at 385.5 pence, valuing the business at about 1.8 billion pounds.

Carphone said the six Best Buy megastores in Britain, which are also part of the venture with its U.S. partner, were producing encouraging results, though it gave no details.

The megastores face stiff competition from established electrical goods groups Dixons and Kesa.

Virgin Mobile France added a net 74,000 customers in the third quarter, Carphone added.

Source: http://uk.reuters.com/article/idUKTRE70H0XX20110118