Net sales dropped to €7.2 billion ($9.45 billion), and Nokia gave a grim outlook for the rest of the year as it prepares for next week's launch of Microsoft Corp.'s Windows 8.
The struggling company conceded that it did not expect great gains from the launch, which includes new Windows based Lumia phones, and described the fourth quarter as " challenging ... with a lower-than-normal benefit from seasonality in volumes."
In 2011, Nokia reported a third-quarter net loss of €68 million on revenues of €8.9 billion.
While the loss was deeper than analysts' forecast for a €610 million shortfall, sales beat expectations of €6.99 billion. Nokia's share price was up more than 5 percent at €2.31 ($3.03) in afternoon trading in Helsinki.
Analyst Hannu Rauhala from Pohjola bank in Helsinki said Nokia's performance had been a mild surprise.
"The worst fears are over. Nokia's network operations were clearly better than expected, and its outlook for the rest of the year was better than expected," Rauhala said. "The cash flow situation was not as badly negative as expected."
The company said its feature phones had shown strong sales on the previous quarter and Nokia Siemens Networks - its former lossmaking joint venture with Germany's Siemens AG - had seen 3 percent revenue growth in the period with an operating profit of €182 million.
But the slide in Nokia's smartphone sector continued in the third quarter when revenue dropped more than 50 percent year-on-year to €976 million with sales of its first Windows Lumia phones falling to 2.9 million units from 4 million in the second quarter of this year.
The Finnish company said it sold a total of 83 million devices in the quarter, down slightly from the previous quarter but a plunge of 22 percent from a year earlier when it had unit sales of more than 106 million.
CEO Stephen Elop conceded that Nokia was still suffering as it shifts its operating platform from Symbian and Meego to Microsoft's Windows software.
"As we expected, the third quarter was a difficult quarter in our devices and services business. 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," Elop said. "While we continue to focus on transitioning Nokia, we are determined to carefully manage our financial resources (and) improve our competitiveness."
Nokia, the world's former top cellphone maker, had hoped to stem the decline in smartphones through a partnership last year with Microsoft Corp. as it struggles against stiff competition from Apple's iPhone, Samsung and other devices running on Google's Android software.
North America, on the frontline of the smartphone market, continued to be a disappointment for Nokia as net sales and volumes further dropped by more than 50 percent in the region in the third quarter.
Nokia has lost out in the fierce top-end race and is now also losing ground to Asian makers in lower-end devices.
Samsung overtook Nokia as the world's No. 1 cellphone maker in the first quarter, with 86.6 million units sold, compared with 83 million for Nokia. Nokia led the field for 14 years.
To cut costs Nokia has announced more than 10,000 layoffs this year in an attempt to reduce operating expenses by €1 billion by 2013, and has not ruled out more cutbacks.