Will Android devices take Nokia down?

Smartphone competition continued to take a toll on Nokia (NYSE:NOK) in the third quarter as the handset maker’s market share declined to 30.9% from 34% in Q2. Competition won’t let up going forward either, and it is primarily coming from the same source – devices built on Google’s (NASDAQ:GOOG) Android operating system.

Nokia made the decision not to adopt Android given its commitment to Symbian, but it’s facing fierce competition from all the other players, most of which have thrown their weight behind Google’s OS. In particular, Nokia is seeing increased smartphone competition from LG, Samsung, Palm, RIM, Apple and HTC, according to Julien Blin, principal analyst and CEO of JBB Research. So the market leader essentially only has a shot against Sony Ericsson and Motorola, which is already looking a bit more formidable with its Android CLIQ on T-Mobile and plans for Android-based Motorola Sholes underway.

Blin expects LG and Samsung to pose the biggest threat to Nokia’s mobile device business. LG agrees too – it has claimed it will become the second biggest cell phone maker by 2012 and has backed up its threat with more than 20 million low-end touchscreen smartphones sold in just two years.

Samsung, too, will give Nokia a run for its dwindling money. It launched Mondi, its first WiMax-enabled fourth-screen device through Clearwire in August, and has a slew of Android phones planned, including the Moment on Sprint and the Behold II on T-Mobile. Tough competition will also come from RIM and its upcoming Storm 2 and Curve 2, HTC with its new Hero and recently launched MyTouch3, and potentially even Dell with its planned touchscreen smartphone on Sprint.

Nokia isn’t taking the competition lying down, however. It will fight back with its recent focus on low-end touchscreen smartphones and new devices, Blin said, as well as some high-end devices, including the N97 smartphone, and its new netbook, the Nokia Booklet 3G, subsidized by AT&T. Still, Nokia only shipped 3.1 million devices in North America in Q1, down 31% year-over-year, so if it can’t beat Android, it might be better off joining it.

“We continue to believe that it would make sense for Nokia to adopt the rival platform on select smartphones as Android continues to gain momentum and gets adopted by many of Nokia rivals,” Blin said in a research note. “This could help Nokia sustain its lead in the smartphone market.”

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