Tech Rumor of the Day: Nokia's Smartphone Stumbles

Already two years late to the touchscreen trend, Nokia (NOK) continues to stumble badly on its smartphone turnaround.

Nokia delivered awful earnings news Thursday that included a warning that price competition and supply constraints will cut into profit margins in the second half of the year. The Finnish phone giant also said the debut of its hotly anticipated top shelf smartphones would be delayed or sporadic in the third quarter.

Adding to Nokia's woes is a glaring misjudgment in its usually strong mid-priced phone segment.

To save a few bucks on materials, Nokia opted to use skimpy 2.4-inch, non-touchscreens for new 6000 series mid-priced smartphones. This comes at a time when the smartphone industry has moved to touchscreen sizes starting at 3 inches and larger.

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"It looks so darn small compared to other phone screens -- I don't understand the product planning behind that," says MKM Partners analyst Tero Kuittenin. "Nokia is fighting the tide of three-inch touchscreens in mid-priced smartphones."

Despite its claims of market share gains in the second quarter, Nokia has been slipping in the big smartphone race as Apple (AAPL), Research In Motion (RIMM) and Palm (PALM) have taken over industry design leadership by pushing touchscreen devices.

In this heated market, cheaper smartphones would play to Nokia's advantage.

These phones give users -- who can't afford the latest iPhone or Palm Pre -- some of the advanced mobile phone features at budget prices. Typically, mid-range phones are given away as part of two-year contracts with calling plans priced around $35 a month in Europe. That is less than half the cost of the average iPhone or BlackBerry plan.