HELSINKI, Jan 27 - The world's biggest cellphone maker Nokia warned of a grim start to 2011 after rivals ate even more of its market share, highlighting the scale of the turnaround task facing its new boss.

Stephen Elop, who took over as chief executive last September, will unveil his plan to revamp Nokia's strategy in two weeks' time and said on Thursday he would aim to reopen markets such as the U.S.

His comments helped Nokia shares reduce heavy early losses. They closed down 0.8 percent at 7.74 euros in Helsinki, off an earlier low of 7.12. In New York Nokia was down 1.3 percent by 1634 GMT.

Nokia has been left in the dust by high-end competitors such as Apple and Google and is now also suffering a drop in sales of its stronghold of traditional phones as Chinese manufacturers muscle in to take advantage of the growing market.

Elop said the company faced significant challenges in its competitiveness and execution and flagged a change in its software strategy.

We must build, catalyze or join a competitive ecosystem, he told a telephone call with analysts, in comments that experts said suggested Nokia could introduce new smartphone models using Google's massively popular Android application.

Nokia, which has struggled to create a rival to Apple's iPhone phenomenon, is now watching smaller competitors like HTC Corp and Motorola hook up their smartphones to Google's Android software and lure customers around the globe.

The statement opens up the opportunity for Nokia to join other ecosystems depending on the markets. Does this mean Android in the U.S.? said Gartner analyst Carolina Milanesi.

Based on Stephen Elop's comments Nokia is certainly evaluating this opportunity, said Canalys analyst Pete Cunningham. They need to do something radical in the U.S.


The phone market has recovered from a slump in 2009 when the global economic slowdown dampened sales of latest gadgets. Now demand for new smartphones like Apple's iPhone 4 and Samsung's Galaxy S is surging.

However, Nokia has lacked a hit smartphone since Apple stormed onto the market a year after Nokia launched its N95 model in 2006.

Nokia's share of the smartphone market fell to 31 percent in the fourth quarter of 2010 from 38 percent in the previous quarter.

What scares the market is the rapid share loss that Nokia seems to have experienced in the fourth quarter, analyst Nicolas von Stackelberg from Macquarie Research said.

Even more dramatic than the share loss in smartphones is the slide in market share in standard phones. They seem to be affected by a massive attack in the lower price tiers, in the non-smartphone business, he added.

Chinese manufacturers are eating into Nokia's once dominant position in low-price emerging markets.

Nokia's sales of non-smartphones -- its traditional stronghold -- fell 10 percent from a year ago, dropping for a second quarter in a row, at a time when the overall market grew.

These results point to the daunting task ahead of Elop in 2011, Geoff Blaber from CCS Insight said. Disappointing total volume, including smartphones, emphasizes that these are dark days for Nokia.


Nokia warned first quarter operating profit margin at its phone unit would drop to 7-10 percent in the January to March period from 11.3 percent last quarter, missing analyst forecasts of 10.2 percent.

It also said its telecom gear venture Nokia Siemens Networks would at best reach break even in that quarter, missing analysts' average forecast for a small profit.

Nokia's underlying earnings per share fell to 0.22 euros, roughly in line with an average analyst forecast of 0.19 euros in a Reuters poll, when excluding a 2.5 euro cent boost from lower-than-usual taxes.

After Elop was appointed in September 2010, Chairman Jorma Ollila had said he would step down shortly, but be available until 2012 shareholders meeting.

Nokia appointed four new members to its 11-member board, which analysts said would now very likely include Ollila's successor.

(Editing by Sophie Walker and David Cowell)

(Additional reporting by Terhi Kinnunen, Jussi Rosendahl and Chris Borowski in Helsinki; and Stockholm newsroom)