By Alex Ritson BBC World Service business reporter

Are Nokia's phones 'sexy' enough?

Nokia is a company which is changing from being extremely profitable into a company which is merely highly profitable.

The Finnish mobile handset maker on Friday said earnings for the three months to March came in at $816m - a respectable sounding sum, but one which was 16% down on the same period last year.

The figure dismayed the financial markets, where Nokia shares fell nearly 10% on Friday morning.

Many investors will have seen it as grim confirmation of the company's own warning earlier this month that handset sales were flagging.

It all adds up to a grave setback for a company that was until a few months ago seen as the unchallenged leader of the mobile phone sector.

Breaking up

As recently as December last year, more than a third of all handsets sold around the world were made by Nokia, but some industry watchers are now predicting that that will fall significantly.

So what has gone wrong?

People are starting to realise that there are other choices out there Huw Morgan, Mobile Choice

According to Damian Peachey of Phones4U, one of the UK's biggest mobile phone retailers, Nokia originally rose to the top thanks to its easy-to-use handset designs.

"Nokia is effectively the default handset brand for most people," he told the BBC's World Business Report.

"A lot of people will read three pages of their operating manual before throwing it away.

"With a Nokia phone, you often don't need to read the manual at all. That's been behind a lot of Nokia's success."

But it seems that Nokia may be losing its edge when it comes to user-friendly design.

According to Huw Morgan, editor of Mobile Choice magazine, the company has been slow to bring out a version of the popular 'clamshell' phone, a compact model which folds in on itself to protect the keypad and screen.

Outflanked

Nokia is also coming under pressure because unlike its biggest competitors, it is just a phone company.

Rival Sony-Ericsson, for example, is building high quality digital cameras into its mobile phones, taking advantage of Sony's expertise in digital photography.

Similarly, Samsung is exploiting its background in laptop computers and televisions to produce mobile phones with high definition, bright screens - a must for accessing the mobile internet and playing computer games.

"You've got other manufacturers with some key strengths," Mr Morgan says.

"People are starting to realise that there are other choices out there, and that these guys are producing some really sexy phones."