The game has changed from a battle of devices to a war of ecosystems, Nokia CEO Steve Elop said, as Nokia, the world's biggest maker of mobile phones, reported a 9% decline in operating profits to €3.2bn from €3.5bn, despite a 4% rise in sales to €42.5bn for 2010.
"The industry changed, and now it's time for Nokia to change faster," he said in the group's annual statement.
According to Nokia, its market share dropped from 34% to 32% as customers switched to high end smartphones like iPhone and Android, despite Nokia shipping more than five million Symbian handsets in the final quarter of 2010.
Analysts said Nokia has been slow to respond to the threat posed by Apple's iTunes and Google's Android app stores. Its own Ovi store had to be redeveloped and Nokia had to recall development of its Symbian ecosystem after it spent two years as an open system product.
Elop said ecosystems represented the broad convergence of the mobility, computing and services industries. He saw a different type of ecosystem emerging around mid-range-to-low-end devices in developing markets. These involved very low-cost components and manufacturing processes.
"In this range, brand, scale, price, design, distribution and speed are critical," he said. "We must believe that our strategy simultaneously increases our success in markets where we are strong, while re-opening doors in markets where we are weak."
While Nokia is market leader in China and other emerging markets, iPhone and Android have eroded its position and margins in Europe and the US as consumers trade up to higher margin smart phones.
Elop said Nokia would leverage its location-based services, localised services like Life Tools in emerging markets, and the Ovi Store, which now enjoyed some four million downloads per day from more than 30,000 apps. In contrast, Apple reported that people had now downloaded 10 billion apps from its store, or a million a day for three years.
Elop said there was "a healthy base of developers across the globe" for Nokia's Symbian and emerging MeeGo operating systems.
He said Nokia would provide further details on its strategy and financial plans on 11 February.