Nokia said its third-quarter net loss widened to €969m as revenue plunged 19% and sales of its flagship Windows Phone fell under 3 million units.
Investors, however, had been expecting an even bigger drop in sales, and sent shares in the company higher.
The struggling company said that net sales dropped to €7.2 billion.
It gave a grim outlook for the rest of the year saying the fourth quarter would be "challenging with a lower-than-normal benefit from seasonality in volumes."
In 2011, Nokia reported a third-quarter net loss of €68m on revenues of €8.9 billion. While the loss was deeper than analysts' forecast for a €610m shortfall, sales were better than the expectations for €6.99 billion.
Nokia's share price surged more than 8% in Helsinki.
The company said its feature phones had shown strong sales and Nokia Siemens Networks - its joint venture with Germany's Siemens - had seen 3% revenue growth in the period.
Smartphone revenue dropped more than 50% to €976m with sales from its first Windows 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% from a year earlier when it had unit sales of more than 106 million.
Nokia chief executive 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," he added.
Nokia had hoped to stem the decline in its smartphones through a partnership last year with Microsoft as it struggles against stiff competition from Apple's iPhone and devices running on Google's Android software.
