April 23, 2010, 5:26 AM EDT

(Adds iPhone comparison in fifth paragraph.)

April 23 (Bloomberg) — Apple Inc.’s London store is buzzing as blue-shirted sales assistants scuttle between two floors. On the opposite side of Regent Street, black plastic obscures Nokia Oyj’s failed attempt at a U.K. flagship outlet.

“I’d definitely pay more for Apple than Nokia,” says 24- year-old London student Federico Crosato while checking out Apple’s iPhone. “I need a phone that’s fast, that doesn’t crash, that has the flexibility.”

The must-have brand a decade ago, Nokia is slashing phone prices and sacrificing profitability after failing to develop a device with the same appeal as the iPhone or Research in Motion Inc.’s BlackBerry. The Finnish company has reduced the average price for a smartphone 18 percent in the last nine months as consumers are unwilling to pay top dollar.

“Unfortunately it’s not Mercedes-Benz or BMW that I think of when I think of them today,” Carolina Milanesi, an Egham, U.K.-based analyst at Gartner Inc. said of Nokia. “Ford is what comes to mind. Reliable, not expensive, and I get a bit more than I paid for.”

That means Espoo, Finland-based Nokia can no longer demand premium prices for its handsets. The company charged, on average, 155 euros in the first quarter for a smartphone, down from 190 euros in the third quarter, squeezing profit. Apple’s earned an average of $622 per iPhone in the second quarter, including services and products.

Forecast Cut

Nokia yesterday reported first-quarter earnings that missed analysts’ estimates and cut its margin target, sending the stock down 14 percent. It now expects an adjusted operating margin for the handset unit of between 11 percent and 13 percent, down from 12 percent to 14 percent. The margin may be as low as 9 percent this quarter.

“Price declines will continue for the moment until they get a whole new high-end platform,” said Tero Kuittinen, an analyst at Greenwich, Connecticut-based MKM Partners who recommends selling the shares. “With the current models, price erosion is inevitable.”

Nokia isn’t the only company suffering from the ascent of the iPhone. Motorola Inc., the largest U.S. mobile phone maker, unexpectedly forecast a first-quarter loss in January, signalling new handsets are failing to boost sales.

Sony Ericsson Mobile Communications AB is struggling to keep its place in the top five mobile-phone makers as rivals race to roll out mass-market products with software comparable with the iPhone. The company is now rolling out touchscreens using Google Inc.’s Android software.

Lost Appeal

The hit brand after its sleek 8110 model appeared in the movie “The Matrix,” Nokia has been on a downward trajectory since soon after Apple launched the iPhone in 2007. Nokia’s average selling price for all models has plummeted 44 percent in the last five years to 62 euros.

“One of the biggest problems is that Nokia has evolved into a company that’s no longer a technology leader,” said Boris Boehm, who helps manage 1 billion euros at Aramea Asset Management in Hamburg, including Nokia shares.

Investors have punished it accordingly. In 1999, Nokia had the highest market value of any European company — 203 billion euros ($270 billion). Yesterday, the company was worth 36.3 billion euros. Apple’s current market value is $236 billion.

Nokia Chief Executive Officer Olli-Pekka Kallasvuo has delayed the planned rollout of new high-end phones, saying yesterday that smartphones with the new version of the Symbian operating system will be announced in the second quarter and shipped in the third quarter.

Product Delays

“They’ve had product delays across the board, while Apple is stacking up substantial gains,” said Alexander Peterc, a Paris-based analyst at Exane BNP Paribas. “Even if Nokia comes out with some devices in the second half and they’re pretty damn revolutionary, it will be hard for them to compete.”

Apple said April 20 iPhone sales more than doubled to 8.75 million handsets in the quarter ended in March as new carriers signed on in Europe and Asia. The Cupertino, California-based company reported a 49 percent sales increase and a 90 percent net income gain.

Still, Nokia has size on its side, selling 108 million phones last quarter, a 16 percent increase from a year ago. The company, which has battled back before, may be just a hit phone away from a price rebound.

Kallasvuo yesterday vowed to fight back with products that are “more intuitive, fun and faster.”

Chasing iPhone

“One product doesn’t change the landscape but it gets them back in the game,” Jason Willey, a London-based analyst at Standard & Poor’s Equity Research. “If you look over a longer timeframe, players have come and gone. The one constant has been Nokia.”

Back on Regent Street, the Nokia signs are gone from the store, one of three flagships the company closed earlier this year. On the other side of the city’s main shopping promenade, Matej Timko, a 24-year-old waiter, is debating whether to buy an iPhone or the new Google device.

“They’re worth the extra money,” he said.

–Editors: Chad Thomas, Heather Harris

To contact the reporters on this story: Diana ben-Aaron in Helsinki at ; Matthew Campbell in London at ; To contact the reporter on this story: Howard Mustoe in London at .

To contact the editor responsible for this story: Vidya Root in Paris at ; Colin Keatinge at .