Nokia has reported a loss of €576m in its third quarter, which it put down in part to a "tough" transition to Windows 8-based Lumia handsets.
On Thursday, the company said it had net sales of €7.2bn (£5.85bn or $9.44bn) in the three months to the end of September, a year-on-year decline of 19 percent on €8.9bn in 2011. A fall in the number of handsets sold — primarily smartphones — accounts for much of the downturn.
"As we expected, Q3 was a difficult quarter in our Devices and Services business," Stephen Elop, chief executive of the company, said in a statement. "In Q3, we continued to manage through a tough transitional quarter for our smart devices business, as we shared the exciting innovation ahead with our new line of Lumia products."
Much of Nokia's smartphone hopes lie in the upcoming release of the Windows Phone 8-based Lumia 820 and its flagship Lumia 920 devices later this month, as well as the success of Microsoft's mobile platform as a whole.
However, Roberta Cozza, mobile analyst at Gartner, said the smartphone sector — and Nokia's fourth quarter — will be tough nuts to crack.
"The challenges remain in the higher-end, but that's no surprise, [Nokia] didn't have any new products in Q3," Cozza told ZDNet.
"Q4 is also going to be very challenging. There are very high-profile, high-end devices in the market like the iPhone 5, but also Samsung being more aggressive on the pricing of the Galaxy S2 and Galaxy S3. And price cuts of the iPhone 4 and 4S."
Cozza added that the pressure on Nokia will primarily come from price cuts on existing high-end handsets. However, the company has the opportunity to broaden its portfolio and introduce more mid-tier devices to avoid going head-to-head with its biggest rivals.
Smartphone sales drop
In its third-quarter report, Nokia said it sold just 6.3 million smartphones, down 63 percent year-on-year. Beyond smartphones, handset sales fell 15 percent to 76.6 million. However, the Finnish handset maker's performance was brighter when looked at in comparison with the second quarter, showing a four-percent rise in sales.
Despite the across-the-board decline, Nokia's €576m loss is better than its showing on its first and second quarters, when it was in the red for €1.3bn and €826m respectively. The company said the improvement was largely to cost-cutting measures, although maintaining the average selling price of its non-smartphones in a competitive market also helped.
One of the cost-cutting measures has been a reduction in staff over the course of the last year. On 30 September 2012, Nokia had 105,265 employees whereas on the same date in 2011 it employeed 135,949 people.
Looking ahead, Cozza agreed that Microsoft's release of Windows Phone 8 on 29 October could help Nokia, as buyers get used to the operating system. On the other hand, the influx of Windows Phone 8-based devices from the likes of Samsung, HTC and Huawei could cause the Finnish giant problems going into 2013, she noted.
The Finnish hardware maker's own outlook for its smartphone unit the next financial quarter doesn't paint a prettier picture, even though handset vendors can usually look forward to a bump in the Christmas and holiday season.
"Nokia expects the fourth quarter 2012 to be a challenging quarter in smart devices, with a lower-than-normal benefit from seasonality in volumes, primarily due to product transitions and our ramp up plan for our new devices," the company said.
Nokia's share price was up around four percent at the time of writing following the financial disclosure.