Nokia Oyj (NOK1V) isn’t just losing mobile- phone market share to iPhone maker Apple Inc. (AAPL) The Finnish company’s dominance in China, the world’s largest wireless market, is being eroded as prices sink.

Nokia’s second-quarter handset shipments in China fell to 11.3 million, less than half the previous quarter’s number and 41 percent less than a year earlier. That, combined with a 30 percent drop in European sales, contributed to a greater-than- estimated 20 percent slump in Nokia’s handset sales worldwide.

Chief Executive Officer Stephen Elop faces the dilemma of where to focus his resources: Nokia is racing to meet its year- end target of shipping its first phone based on Microsoft Corp. (MSFT)’s Windows Phone software. At the same time, he needs to halt the decline in China as models based on Google Inc. (GOOG)’s Android software have fallen below 100 euros ($144) and started cutting into Nokia’s lower-end feature-phone sales, said Michael Schroeder, a Helsinki-based analyst at FIM Bank.

“They’ve been a clear market leader for many years, but now it seems that era is coming to an end,” said Schroeder, who has a “hold” recommendation on Nokia shares. “I don’t think you lead that market with 11 million devices sold.”

At its earnings conference call yesterday, Elop said he had taken steps to address the build-up of inventory at Chinese resellers that helped trigger a profit warning in May. The inventory overhang could have been as many as 5 million handsets, according to an estimate by Sami Sarkamies, a Helsinki-based analyst at Nordea.

Inventory Movements Nokia also replaced managers in China and has named global sales chief Colin Giles as interim head.

“There is softening of demand but the inventory movements were substantial,” Elop said. Failing to reverse the sales decline may endanger the CEO’s plans to sell 150 million handsets based on Nokia’s Symbian software during the transition to Windows Phone.