June 2 (Bloomberg) -- Nokia Oyj, the world’s largest mobile-phone maker, today began shipping a phone equipped with more software and storage than many low-cost notebooks in a bid to regain market share lost to Apple Inc.’s iPhone.

“This should not be a niche product,” Jonas Geust, Nokia’s vice president responsible for the N series handsets, said in an interview. “Clearly our ambition is to have a similar success to the N95 family.” The N95 has sold more than 10 million units as of the end March, according to Nokia.

Nokia lost market share in smartphones last year to the iPhone and Research in Motion Inc.’s Blackberry models as customers in the U.S., one of Nokia’s weakest areas in past years, embraced those products. Now, the Espoo, Finland-based company is trying to win customers by combining a touch screen and a Qwerty keyboard in the N97, which goes on sale this month in more than 75 countries for 550 euros ($780) before subsidies.

“It’s a step in the right direction, but it’s not as iconic a device as the N95 was,” Carolina Milanesi, an Egham, U.K.-based analyst at Gartner Inc. said in a telephone interview. “The second half of the year is going to be very competitive with a lot of devices coming out. Last December when they introduced this product would have been the right time to actually get it into the market.”

The N97 competes with second-quarter rollouts including Palm Inc.’s Pre, which also has a touch screen and full keyboard and starts selling through Sprint Nextel Corp. on June 6. Apple is set to unveil a revamped iPhone at the Worldwide Developers Conference on June 8. Other rivals include Samsung Inc.’s i8910 Omnia HD and the i7500 with Google Inc.’s Android software.

Ovi Store Link

The N97 has 32 gigabytes of storage, DVD-quality video capture and pre-installed widgets for uploading content to Facebook and other social networking sites. It’s aimed at users who want to publish their own content as well as use it, Geust said. It’s also the first phone with a built-in link to Nokia’s Ovi Store, the company’s push to build a third-party software warehouse to rival Apple’s App Store.

“The N series badly needs to revive its lost shine and this device will retake the lead at least in hardware terms with the highest density memory available,” said Alexander Peterc, a Paris-based analyst with Exane BNP Paribas, who has an “underperform” rating on Nokia’s stock. “While the N95 launched in an extremely favorable macroeconomic climate in the first half of 2007, the N97 is launching at a much trickier time for consumers.”

Scavenger Hunt

Operators who will carry the N97 include Telefonica SA, Vodafone Group Plc, Orange SA, Telecom Italia SpA and Singapore Telecommunications Ltd., Nokia said. Vendors in the U.K. will include 3, Orange, T-Mobile, Vodafone, Carphone Warehouse and Phones4U, the company said.

Nokia has built anticipation for the N97 through demonstration events, Twitter streams, coverage by bloggers and an online scavenger hunt for hidden N97s across 13 countries.

The Finnish company has taken “thousands” of preliminary orders for the N97 and eventually aims to sell the N97 in all its markets, Nokia spokesman Doug Dawson said. The company hasn’t announced a carrier deal in the U.S., where the N97 will be available through Nokia stores, he said.

Market Share Slide

Nokia’s global market share in smart phones fell to 41.2 percent at the end of the first quarter from 49.4 percent at the end of 2007, according to researcher Gartner Inc. RIM has doubled its share to 19.9 percent and Apple now supplies 10.8 percent of all smartphones, from none two years ago.

In order to take back share, Nokia will need “something maybe a bit less expensive, almost a step between the 5800 and the N97, and definitely a much better touch user interface than they’ve implemented,” Gartner’s Milanesi said. “Consumers are getting pickier about what they get out of a device and what they’re committing to from a contract perspective.”

Smartphones accounted for 13.5 percent of mobile device sales by units last quarter, Gartner said.

“We clearly have some work to do to extend our leadership in smartphones, where new entrants into the market are attacking our share,” Chief Executive Officer Olli-Pekka Kallasvuosaid at an April 23 investor meeting, adding that the company will introduce lower-priced models.

High-End Margins

Gross margins on the N97 are likely to be between 40 percent and 55 percent, said Tina Teng, an analyst at California-based market intelligence firm iSuppli.

The margin is typically about 5 percentage points lower in the first quarter of shipments, when production is ramped up, Teng said.

“When Nokia introduced the N95 in the second quarter of 2007, its average selling price in Europe increased by as much as 7 percent, so a successful high-end device can be a very meaningful contributor to the top line and margin,” Exane’s Peterc said. The N95 was also priced at 550 euros at release.

Last quarter, Nokia sold about 13.7 million smartphones, or 14.7 percent of total shipments, including about 5 million from the N series. The company said it has shipped more than 25 million units of the N70, an early N Series model introduced in 2005, about 50 million of its 6300 mid-price phone and more than 250 million of the 1100 entry-level model.

The Ovi Store, where users of Nokia’s advanced phones can download applications and content, opened last week and is slated to have at least 20,000 items for different devices and languages when fully loaded. Apple’s App Store, which opened one year after the iPhone introduction, has more than 35,000 items for sale and has sold more than a billion downloads.

The “medium-term” goal is to make every handset customer an Ovi Store customer as well, so that services revenue tracks device revenue, Nokia Media Vice President Marco Argenti said in a phone interview.

To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

Last Updated: June 2, 2009 04:42 EDT