The cell phone industry is gearing up for the holiday season with a fleet of new handsets, and they all have one goal in mind: to steal some thunder from Apple’s (

For the first time since it launched its iPhone two years ago, Apple has became the most profitable maker of handsets in the industry, according to a new report from industry research firm Strategy Analytics. Apple doesn’t break out profits per division, but Strategy Analytics estimates Apple's operating profit for its iPhone unit came in at $1.6 billion quarter in the third quarter, beating Nokia (NOK: 13.21, -0.32, -2.36%) for the first time. Nokia still sold the most handsets around the world, upwards of 108 million phones, generating sales of 6.9 billion euros ($10.36 billion) and profits of $1.1 billion. And Apple isn’t close to that volume, selling 7.4 million phones in the quarter, with revenues of $4.5 billion. But Apple has leaped ahead of its rivals thanks to high wholesale prices, tight cost controls and strong volume growth, according to Strategy Analytics. Nokia now trails Apple in market share in the U.S., and Nokia's profit margin for its handset division has been shrinking in 2009.

To some extent, though, it’s not really a fair fight. Nokia competes around the world with a wide range of phones, from low-end handsets used primarily for making calls (who would guess) to high-end, multifunction smartphones. Apple makes just one phone product and profit margins in the industry are higher as you move up the price ladder, says analyst Lee Simpson of Jefferies & Co., in London. Nokia has been shifting manufacturing to lower cost countries like China and Korea, he points out, and Apple still doesn’t have Nokia’s global scale, competing across the price spectrum with a broad lineup of devices. “It’s fashionable to love Apple,” he says, “but it’s difficult to duplicate Nokia’s reach, and it remains to be seen whether Apple can do this.”

Apple is also facing an increasingly tough smartphone market, squaring off against new touch screen devices from Research in Motion (RIMM: 58.14, -1.62, -2.71%), Motorola (MOT: 8.20, -0.08, -0.96%) and Palm (PALM: 11.00, -0.24, -2.13%). Several of the new models are also equipped with Google’s (GOOG: 579.76, -5.98, -1.02%) Android operating system, which has been winning positive reviews. Nokia, for its part, has rushed out what it hopes is an iPhone killer, the N-900, based on a new Linux operating system. But it’s far too early to say if it will be a hit. “The high end is getting crowded,” says Simpson, “and it’s a difficult play for Nokia.”