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Nokia counts on low-cost handset

– As Nokia struggles to catch Apple and Samsung in the market for smartphones costing $500 or more, it’s counting on a bare-bones handset that sells for just $20 to give it an edge.

Priced 97 percent below the latest iPhone, the Nokia 105 features preloaded games, a color screen, a radio, a speaking clock and a flashlight. The phone, Nokia’s cheapest ever, has been available for a few weeks in India and Indonesia and will soon start selling in Europe.

Even with its bargain-basement price, the 105 is critical to Nokia’s entire handset business. Nokia reported April 18 that it sold about 11 million fewer mobile phones in the first quarter than analysts had projected, with sales of basic phones plunging 21 percent to 55.8 million units.

A failure to revive the low-end business would leave Nokia without an important source of cash as it seeks to develop devices to challenge the iPhone and Samsung handsets running Google Android.

Falling sales of simpler phones are “definitely worrisome,” said Mika Heikkinen, a fund manager at FIM Asset Management in Helsinki, who helps oversee some $2.5 billion, including Nokia shares. “They have to get this under control.”

Nokia Chief Executive Officer Stephen Elop, speaking to investors after the report, pointed to the 105 as a signal that the low-end business can recover after a “difficult” quarter.

While demand for the iPhone and Android devices have made smartphones the fastest-growing part of the market, basic handsets still make up more than half of units sold. That means hundreds of millions of phones each quarter – a market Nokia dominated until Asian manufacturers such as ZTE, Huawei and Samsung started challenging it more aggressively.

Nokia says the 105 will be profitable but declined to provide any details.

Of the 336 million handsets Nokia sold last year, only about 10 percent were smartphones. Basic models accounted for 31 percent of Nokia’s revenue, versus 18 percent for smartphones. Network equipment made up most of the balance.

Nokia had more than half of the mobile handset market before Apple introduced the iPhone in 2007. Nokia shares have fallen more than 80 percent since then.