Nokia has reported a net loss of 368m euros ($521m) for the second quarter of 2011.
The company's net sales also fell 7% to 9.3bn euros ($13.3bn), and it also finally lost its leadership in terms of smartphone shipments.
The results for Nokia would have been considerably worse were it not for a 430m euro royalty settlement with Apple.
Nokia sold 16.7 million smartphones in the quarter against Apple's sales of 20.3 million iPhones, meaning it lost the lead in the segment it created.
Nokia CEO Stephen Elop said that the company had already taken steps to transform the company, through its tie-up with Microsoft, and initial feedback, from undisclosed parties, on its Windows based phones was positive.
"The challenges we are facing during our strategic transformation manifested in a greater than expected way in Q2 2011. However, even within the quarter, I believe our actions to mitigate the impact of these challenges have started to have a positive impact on the underlying health of our business. Most importantly, we are making better-than-expected progress toward our strategic goals," Elop said in a company statement.
Elop also said that Nokia had addressed inventory build up in China and Europe, was being more responsive on product pricing in different markets, had made changes in sales management and improved sales and marketing focus on retail interactions with consumers.
"In Q2, our immediate action to manage unexpected sales and inventory patterns enabled us to create healthier sales channel dynamics, which led to greater business stability in the latter weeks of the quarter," he said.
Nokia's shares showed single-digit gains after the announcement, mainly through its prediction that its cell phone business will remain profitable in the third quarter.