What does it take for a big, profitable company to make it in the cell phone world these days anyway? You have to be named after a fruit or what?

This, no doubt, is the question Nokia (NOK), the world’s largest telephone handset maker, is asking itself.

With 38% of the global market, the total size of the cell phone universe growing, and a dynamic movement among consumers toward smart phones, Nokia’s stock should be remarkably successful. And yet, it’s not. Why?

Since the beginning of the year, Nokia’s shares are flat, while Apple (AAPL) and Blackberry maker RIM (RIMM) are up over 100%.

Nokia has done what it can to replicate the advances made by its competition. It has built a multimedia store, so that customers who use its phones have access to music downloads. It has built an app store like Apple’s, so that developers can create software that works on its products.

But Nokia suffers from a formidable list of problems. The first is that getting more than 38% of the market is nearly impossible. The company’s rapid growth is probably behind it, as it goes up against aggressive electronics firms like Samsung, LG, and Sony Ericsson.

Nokia also tends to do very well in developing countries where the handsets are relatively inexpensive. With an inexpensive product comes lower profit margins — Nokia’s yield per phone sale is modest compared to Apple’s.

Nokia has tried to attack the high-end smart phone market. It offers a fully-featured handset called the N97, which retails for a hefty $599. The phone has a touch screen, a key board, mapping and photo features, and a fairly large 3.5″ screen. Many of those features match ones on the iPhone and Blackberry.

But Nokia was very late to market with the product, and for reasons that are hard to define, a Nokia product is not a “must have” like an iPhone is. Clearly, the Nokia brand does not carry the same cache as Apple does.

There is certainly nothing fundamentally wrong with Nokia. It posted revenue of over $71 billion last year and had net income of $5.8 billion. That was a comedown from the previous year because of the effects of the recession. The stock has rallied from under $9, which it hit in the huge market sell-off in March, to nearly $16.

Baird recently downgraded Nokia. The reason was concern that the company will lose market share. Without a compelling, “hot” handset in its product line, the stock is likely to underperform its competition.

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