Nokia reported smaller-than-expected losses for the third quarter but warned of tough times ahead, with investors saying the company's survival depended on whether its new smartphones can claw back market share from Apple and Samsung.
The Finnish phone-maker reported an underlying loss before one-off items of 0.07 euros per share on Thursday compared to a profit of 0.03 euros a year earlier. The market expected a loss of 0.11 euros, according to a Reuters poll.
While the results, boosted by strong profits at its telecoms equipment venture Nokia Siemens Networks, were above forecasts, investors said pressure was still on Chief Executive Stephen Elop who was hired in 2010 to turn the company around.
"I think Nokia will continue to have a rough ride," said Inge Heydorn, fund manager at Sentat Asset Management.
Once the world's biggest mobile phone maker and a trail-blazer in the sector, Nokia has fallen behind Apple's iPhone and Samsung's Galaxy in the lucrative smartphone market.
Nokia is now pinning its hopes on the new Lumia 820 and 920 models, which come in vivid colors, have high-resolution cameras and run on Microsoft's latest software. The new Lumias are due to hit the stores in November.
Nokia shares briefly rose as much as 10 percent on the results but fell back to trade flat at 2.20 euros by 1300 GMT.
Jefferies analyst Lee Simpson warned investors were "in danger of buying a challenged product cycle", warning that the company could keep burning cash for another year.
BURNING THROUGH CASH
Net cash came in at 3.6 billion euros ($4.7 billion), ahead of market forecasts of 3.4 billion euros. But that was still down from 4.2 billion in June.
Investors and analysts have said that if its cash position worsens and Lumia sales provide little bounce over the coming months, the company may need to change its strategy - as well as its chief executive.
Nokia has cut spending and is selling assets such as its Vertu luxury handset unit to improve its finances. It is also considering selling and leasing back its waterfront headquarters in Espoo, a short drive from Helsinki.
Sales of the existing range of Lumia smartphones fell to 2.9 million from 4 million in the second quarter as consumers waited for the newer models. Average selling prices dropped to 160 euros from 186 euros per phone.
Sales of mid-range feature phones rose from the previous quarter, helped by the new Asha range, but Nokia's long-term survival is seen as more dependent on higher-margin smartphones.
"Feature phones are a sunset technology and smartphones are sun rising, so they need to transfer growth to the sun rising technology," said Neil Mawston, analyst at Strategy Analytics.
Nokia said the fourth quarter would be challenging as it starts to roll out the Lumia 820 and 920 with more marketing than on earlier Lumia models.
The pre-holiday shopping season is seen as crucial for mobile phone makers, and the new Lumias will face strong competition from Apple's new iPhone 5 and Samsung's Galaxy SIII.
The new Lumias will also be competing with a whole range of new tablets this Christmas, including Apple's new mini iPad which is expected to be launched next week.
"Lofty market expectations for Q4 ignore the reality that new products will ship halfway through the quarter into an overwhelmingly competitive and congested market," said CCS Insight analyst Geoff Blaber.
Elop said he was encouraged by the improvement at NSN.
Underlying operating profit at NSN jumped to 323 million euros from 6 million a year earlier, with cost cuts and rising sales helping to beat all analysts' expectations in the Reuters poll. The venture is in the midst of chopping annual costs by 1 billion euros, including 17,000 job cuts.
($1 = 0.7621 euros)
(Additional reporting by Tarmo Virki, Terhi Kinnunen and Jussi Rosendahl in Helsinki and Simon Johnson, Patrick Lannin and Niklas Pollard in Stockholm; editing by Jane Barrett)