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By Diana ben-Aaron

May 6 (Bloomberg) — Nokia Oyj has had three years to come up with a rival to the iPhone. Investors say that’s long enough.

As Chief Executive Olli-Pekka Kallasvuo addresses shareholders today at the Finnish company’s annual meeting, he needs to convince them that Nokia, the world’s largest mobile- phone maker, will have hit smartphones this year to compete with Apple Inc., Research In Motion Ltd.’s BlackBerry and devices based on Google Inc.’s Android software.

“Patience is running out and people are starting to worry about eroding brand value,” said Max Jul Pedersen, who helps manage $95 billion at Danske Capital in Copenhagen and is considering selling his Nokia shares. “Nokia has very little to show for their big research and development budget.”

Nokia, based in Espoo, Finland, spent almost six times as much as Apple on R&D last year, yet has failed to develop a device with the same mass appeal as the multi-application iPhone. The company’s shares have tumbled about 20 percent in the two weeks since it reported first-quarter earnings that missed analysts’ estimates, wiping out 8.2 billion euros ($10.5 billion) in market value.

Now 34 billion euros, or $44 billion, the company’s market capitalization compares with Cupertino, California-based Apple’s $230 billion, and is a shadow of its 1999 peak of 203 billion euros, the highest of any European company.

Scattered Ownership

Ownership in Finland’s largest company is scattered around the globe. The company had 156,000 shareholders at the end of 2009, with 38 percent of shares owned in the U.S., where investors see few Nokia phones on store shelves alongside Apple and other competitors.

In a push to sell its smartphones, Nokia slashed prices 18 percent in the last nine months, sacrificing profit. Even with the price cuts, its share of the global handset market fell almost 2 percentage points in the first quarter to 36.6 percent, International Data Corp. said April 30.

Nokia’s sinking fortunes have prompted some investors to call for management changes.

“If there were new management, depending on who it was, people could be impressed and it could be a positive catalyst,” said Leon Cappaert, who helps manage 360 million euros of investments at KBC Asset Management in Brussels and sold his Nokia shares a few days after the results.

Nokia spokeswoman Arja Suominen declined to comment on speculation about changes in the executive suite.

Kallasvuo, who over a span of 30 years has held a multitude of posts at Nokia including general counsel and chief financial officer, became CEO in 2006. Nokia’s downward trajectory began on his watch, soon after Apple unveiled the iPhone in 2007.

‘Run Fast’

Last month, 56-year-old Kallasvuo vowed to fight back with products that are “more intuitive, fun and faster.”

Nokia on April 27 announced the N8, its first phone using a rewritten software platform designed to improve usability. The touchscreen phone will be shipped in the third quarter.

Yesterday, Nokia and Microsoft Corp. released the first software component from their partnership, seeking to challenge RIM, the Canadian maker of BlackBerry handsets. Microsoft Office Communicator Mobile software is the core of a suite that is expected to include document sharing, live meetings and video conferencing capabilities for smartphones analogous to those on corporate desktops, the companies said.

Still, Nokia will have to be swifter and more nimble to keep up with rivals, investors said. Nokia’s annual R&D budget of about $7.7 billion is 14 percent of revenue, compared with Apple’s spending of $1.3 billion, or 3 percent of sales. Nokia’s expenditure also includes figures for its networks division.

‘May Be Too Late’

“The high-end user they’ve lost to the iPhone has signed up for iTunes and put their information on Apple; Nokia won’t get them back or not without an enormous amount of pain,” said Stuart O’Gorman of Henderson Investors Ltd. in Edinburgh, who sold his shares the day Nokia announced first-quarter results. “You have to run so fast to stay still in this market. It may be too late.”

Nokia’s average selling price for all models has plummeted 44 percent in the last five years to 62 euros. Nokia charged, on average, 155 euros in the first quarter for a smartphone, down from 190 euros nine months ago.

“Nokia is cutting prices because it’s the only way they can keep market share,” said Francisco Jeronimo, a London-based analyst at IDC. He expects the company’s share of global shipments and profits to decline further, and says Nokia may lose its European market leadership to Samsung Electronics Co. as early as this year.

Dividend Payout

“The endgame could be that the current or new management realizes the best way to leverage Nokia’s strengths is to be a mass producer of cheaper, good quality products, which would rapidly lower their R&D costs,” said Pedersen.

One thing Nokia still offers investors is a dividend. The company plans to pay 40 cents per share for 2009, the same as in 2008 even though earnings fell 78 percent.

Apple CEO Steve Jobs hasn’t paid a dividend since 1996, preferring to preserve money. Apple had $23 billion in cash and short-term investments as of the end of March compared to Nokia’s $12.4 billion. Analysts question how long Nokia can maintain a dividend of the current size.

Nokia replaced its finance chief last year after posting the first loss since the company began reporting quarterly in 1996. Sales chief Timo Ihamuotila took over from Rick Simonson, who now runs the low-end phone unit. Kallasvuo was selected by previous CEO Jorma Ollila, who is now board chairman.

“If they change the CEO or something, that could be a trigger to the stock price performance,” said Niklas Lund, a fund manager at Alandsbanken Asset Management in Helsinki. “That’s not likely. He was handpicked by the chairman and you would have to change them both. Investors don’t really get heard on the board.”

To contact the reporter on this story: Diana ben-Aaron in Helsinki at

Last Updated: May 5, 2010 18:01 EDT