Nokia bets on Linux in iPhone battle: sources

HELSINKI Wed Aug 26, 2009 6:35am EDT

A woman walks past a picture of a model of the newly introduced Nokia N97 mobile phone during a Nokia media event in Singapore June 15, 2009. REUTERS/Vivek Prakash

A woman walks past a picture of a model of the newly introduced Nokia N97 mobile phone during a Nokia media event in Singapore June 15, 2009.

Credit: Reuters/Vivek Prakash

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HELSINKI (Reuters) - Nokia Oyj will try again to tackle Apple Inc's iPhone in the top-end of the handset market with a bet on Linux software, several industry sources told Reuters.

Top handset maker Nokia will show its first high-end phone running on Maemo, a version of Linux, next week at the annual Nokia World event in Stuttgart, Germany, the sources said.

But analysts said it would likely not become clear before next year at the earliest whether this would help Nokia achieve its aims.

The Finnish group has dabbled with Linux since 2005, using it in "Internet tablets" -- sleek phone-like devices used to access the Web that have failed to gain mass-market appeal in part due to their lack of a cellular radio.

"It looks like Maemo, or at least a Linux derivative of some description, will play a key role for Nokia in high-end (products) over the next year or two," said Neil Mawston from Strategy Analytics.

Nokia's workhorse Symbian operating system (OS) controls half of the smartphone market volume -- more than its rivals Apple, Research in Motion Ltd and Google Inc in total.

Yet analysts said Linux-based products could have important advantages.

"Maemo is clearly far more flexible than Symbian, so it's a better option for advanced devices using various display technologies and rapidly evolving user-interface software," said analyst Tero Kuittinen from MKM Partners.

A Nokia spokesman said the company could not comment on future phone launches.

VALUE SHARE

High-end products are important for Nokia because the company has not only lost market share in this segment but its average selling prices have declined faster than the industry average.

Goldman Sachs expects Nokia's value share (a measure reflecting average prices as well as underlying market share) for phones costing more than $350 to decline to 13 percent this year from 33 percent just two years before.

"Maemo's got to be the best bet Nokia has in that battle." said eQ Bank analyst Jari Honko.

Linux is the most popular type of free or open source operating system. It competes directly with Microsoft Corp, which charges for its Windows software and opposes freely sharing its code.

Linux suppliers earn money selling improvements and technical services.

Nokia has already talked about its work with Linux-based systems.

"Maemo is taking the desktop Linux environment and making it mobile," Kai Oistamo, the head of Nokia's key phone unit, told Reuters in a recent interview. "We have proven it really can be made, you can take desktop Linux and make it work on mobile."

Linux has had little success in cellphones so far but its role is increasing with Maemo and also with Google using it for its Android platform.

Nokia's bet on Maemo does not mean the firm would replace Symbian software -- at the same time it is moving Symbian extensively into its cheaper phones, expanding its target market.

Confirming the trend, Nokia on Tuesday unveiled a new touch screen smartphone, the 5230, which runs Symbian and is expected to sell for just 149 euros ($213.4), excluding operator subsidies and local taxes.

(Editing by David Holmes)

($1=.6983 Euro)

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