Can mighty Nokia get its groove back?

But earlier this month, as executives talked up the company’s plans for 2010, the optimistic message from the stage was belied by the behaviour of the audience. In the back of the room, one money manager after another distractedly toyed with a competing device, typically a BlackBerry, even as cheery PowerPoint slides promoted Nokia’s latest offerings.

Although Nokia, based near Helsinki in Espoo, still commands 37 per cent of the world’s handset market, it is facing bruising competition in the lucrative high end of the industry, where Apple’s iPhone and Research in Motion’s Black-Berry have grabbed the cool factor with smartphones that can surf the Web and handle e-mail.

As if to underscore its problems in the United States, Nokia said that it would close its flagship stores in New York and Chicago. “We made wrong decisions in the American market,” said Kai Oistamo, Executive Vice President for devices. For example, Nokia was slow to make the change to so-called clamshell phones, sticking with monoblock models even as consumers abandoned them.

And while Nokia first offered touchscreen technology in 2004 — three years before the debut of the iPhone — Apple’s models quickly made Nokia’s competing products look stodgy. Most of Nokia’s touch-screen phones cannot respond as fast to the jab of a finger, which is among the factors that make the iPhone seem so much more slick.

And though Nokia still sells a lot of smartphones, its share of the global market has fallen to 39.3 per cent, down from 42.3 per cent a year ago. Even in Nokia’s home base of Europe, the iPhone is rapidly gaining in popularity.

Nokia is finally responding on the high end — its lithe, BlackBerry-like E72 appeared last month in Europe and Asia. But it is facing threats in other segments. Google is offering Android, a rival to Nokia’s own operating system, and it has been picked up by competitors like HTC, Motorola and Dell, while Asian manufacturers are turning up the heat with low-priced handsets in emerging economies where Nokia has long enjoyed outsize market share.

At home in Finland, Nokia’s problems are felt especially keenly. The problems have reached all the way to Finland’s national coffers. In 2007, Nokia paid 18 per cent of Finland’s overall corporate taxes, but that dropped to 9 per cent last year, and the contribution is expected to be even lower in 2009.

Olli-Pekka Kallasvuo, company’s taciturn Chief Executive, acknowledged that the mood out there is gloomy, especially on Wall Street. “We are not getting the benefit of the doubt,” he said adding “we need to change that.” Indeed, for all the new competition in smartphones, Nokia remains the dominant player in conventional handsets, selling about 15 phones a second world- wide, according to the company, including the best-selling Nokia 1201. Analysts project revenue in 2010 will top $3.5 billion next year as the overall phone market grows 10 per cent.

And while market share might be minuscule in North America, the company commands a whopping 62.3 per cent of the market in the Middle East and: Africa, as well as 48.5 per cent in eastern Europe and 41.8 per cent in Asia. “We are the incumbent behemoth of the mobile arena,” Anssi Vanjoki, Executive Vice President for markets, boasted. What is more, Nokia has been written off before.

Citing past crises in 1998 (the advent of smaller phones), 2001 (the bursting of the technology bubble) and 2004 (the sudden popularity of flip phones), Vanjoki said: “We’ve always had points where technology hit a plateau and had to be reconfigured.” So why have Apple and Research in Motion come on so strong? “We didn’t execute; we were aiming at too geeky a community,” he said. The coming 12 months will show whether Vanjoki’s confidence is warranted, and he better be right, as far as shareholders are concerned, since smartphones are where the growth is.