Smartphone sales at Nokia dropped by almost a third in the fourth quarter as initial sales of the key Windows Phone platform failed to counter a slide in shipments of its older operating system.

However, the sharp decline was not as bad as analysts had predicted, even if the initial relief bounce faded to leave the Finnish company’s shares 2.7 per cent higher at €4.16.

Nokia posted an operating loss of €954m, compared with a profit of €884m last year, which reflected a €1.1bn writedown in its location and commerce division. There was a 21 per cent drop in sales to €10bn in the fourth quarter.

Smartphones, most of which still use the old Symbian software, fell by about a third from a year ago to 19.6m handsets.

Stephen Elop, chief executive, said the fourth quarter was a “significant step in Nokia’s transformation” but declined to give an annual target for 2012.

Nokia is forecast by analysts to have lost as much as 7 percentage points of global market share, to about 24 per cent, as its older smartphones struggled and its market-leading handsets in emerging markets met fierce competition from Chinese low-cost phones.

Even so, the company gave the first indications of a fightback for the high-end smartphone market – crucial for the group’s long-term future – after revealing that initial sales of handsets introduced in partnership with Microsoft last year exceeded 1m.

Nokia has so far launched two phones in Europe and Asia, including the flagship Lumia 800, as well as its first handsets in the US this year.

Mr Elop said: “From this beachhead of more than 1m Lumia devices, you will see us push forward with the sales, marketing and successive product introductions necessary to be successful.”

The booming smartphone market has increasingly become an two-horse race between the Apple iPhone and Android’s many manufacturers, in spite of attempts by Nokia to claw back ground using the Windows Phone platform under a partnership agreed with Microsoft this time last year. This gulf has become particularly apparent this week given stellar earnings from Apple on Tuesday.

Nokia had been left behind in an unforgiving and swiftly moving market, a fact that led Mr Elop to declare the company to be on a “burning platform” this time last year as he undertook extensive restructuring and pledged its smartphone future to the Microsoft platform. However, the results of this turnround strategy have yet to materialise, leading Mr Elop to declare 2012 as another year of transition.

Even so, the company shipped about 113.5m mobile devices globally in the fourth quarter, down about 8 per cent from last year. Nokia remains a popular brand of low-cost, reliable “feature phone” handsets in emerging markets.

This week analysts at Kantar confirmed that the Lumia 800 had failed to break into the top 10 smartphones sold in the UK and the Windows platform had not taken more than 2 per cent of any market around the world.

The initial response from operators has been lukewarm in spite of their desire to see greater competition in the market.

The number of customer returns are reported to be several times higher than for the equivalent iPhone, although Nokia said it had addressed battery concerns by issuing a number of updates, and that consumer feedback had been positive.

Analysts also expect Nokia will gain ground during 2012 as the platform becomes more widely accepted, even if the dominance of Apple and Android looks unlikely to be challenged.

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