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By Tarmo Virki, European technology correspondent

HELSINKI (Reuters) – The world’s largest handset maker, Nokia unveiled on Thursday its first phone running on Linux software, aiming at improving its offering at the top end of the market.

The focus of cell phone business has shifted to services and software following Apple and Google’s entrances to the market in the last two years.

Nokia also unveiled a new Solutions business unit, which aims to better tie together its phone operations and new mobile Internet services offering.

The Finnish firm has been looking for business opportunities from offering services like music downloads or games to cell phone users as the handset market itself is maturing, but so far its offerings have gained limited traction.

"As Nokia announces the software platform that will drive its future services aspirations it created a dedicated solutions unit — the challenge will be to ensure that all these elements work in harmony in the face of fierce competition from Apple and Google," said Ben Wood, head of research at CCS Insight.

Nokia has kept its overall market share stable, close to 40 percent, but it has lost share among more expensive models to the likes of Apple.

High-end products are important for Nokia because the company has not only lost market share there 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.


Analysts see Linux as a key for Nokia to gain back ground in the coming years.

The Finnish firm 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.

The new N900 model, with cellular connection, touch screen and slide-out keyboard, will retail for around 500 euros ($712), excluding subsidies and taxes.

Nokia’s workhorse Symbian operating system controls half of the smartphone market volume — more than its rivals Apple, Research in Motion and Google put together.

Nokia said Linux would work well in parallel with Symbian in its high-end product range.

"This is in no way putting Symbian in jeopardy," Anssi Vanjoki, head of sales at Nokia, told Reuters.

"Open source Symbian is going to be our main platform, and we are expanding and growing it the best we can, both in terms of functionality as well as distribution … populating more and more of our product line with Symbian," he said.

The new model will use ARM’s Cortex-A8 processor.

"If you look at the energy management properties we have in ARM, at least today, they are clearly better, miles and miles better, than what we have in Intel architecture," Vanjoki said, adding the company would not count out using Intel processors in the same product range later.

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

($1=.7024 Euro)

(Reporting by Tarmo Virki; Editing by Jon Loades-Carter and Rupert Winchester)