Nokia (NYSE:NOK) launches its so-called iPhone-killer, the N97 smartphone, this month. Coming two long years after Apple (Nasdaq: AAPL) took the market by storm, the Finnish mobile phone giant's new device couldn't have come sooner.

But can it make up for lost time? I wouldn't bet on it. Sure, Nokia dominates the smartphone space, the growth area in a mobile market headed for its first annual sales decline. Sales of high-end phones leaped over 12% in the first quarter, even as overall phone market fell almost 9%. The problem is that Nokia's hold on this sought-after market, together with its profit margins, are slipping away.

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Slipping Sales
Nokia accounted for 41% of the 36.4 million smartphones sold in the first quarter of the year - more than double its closest competitor, Blackberry-maker Research in Motion (Nasdaq:RIMM), but down nearly 4% from the first quarter last year. Research in Motion and Apple, meanwhile, are gaining ground on Nokia fast. In just twelve months, they've upped their combined share of the market from one fifth to one third.

Serious Competition
Investors – who've pushed up Nokia stock price by nearly 75% since March – shouldn't bank on the N97 to fend off market share losses. The device faces serious competition, not just from Apple and Research in Motion phones, but also from a whole host of other iPhone wannabes, including Google (Nasdaq:GOOG) Android software-powered handsets from HTC, LG, Samsung, and the Sony (NYSE:SNE) and Ericsson's (Nasdaq:ERIC) joint venture, SonyEricsson. (To learn more, read Great Expectations: Forecasting Sales Growth.)

Software Needs
While handset makers have traditionally fought for customers with hardware features, such as weight, size, QWERTY keyboards, touch screens, camera pixels, etc., buyers now have their eye on software platform features – ease of use of the web browser and applications available. It's here that Apple and others are beating Nokia to the punch. Apple recently announced that 1 billion applications have been downloaded from its app store. Even more worrying: the Android application store is now up and running. Unless Nokia's own store, Ovi, starts to offer the kind of content that buyers really want, Nokia runs the risk of only modest success in the smartphone market.

The Bottom Line
Without a major driver of market share growth, Nokia might be hard-pressed to lift its stock price further. Monday's price of about $15 on the NYSE gives Nokia a forward price-to-earnings multiple of 12.5. With its market possibly slipping further, that multiple may be high enough. (For more, see Dial Up Choice Telecom Stocks.)