Struggling Nokia turned a net profit of €202m in the fourth quarter, compared with a loss of $1 billion a year earlier.

But revenue fell 20% as it failed to make gains in the fiercely competitive smartphone market.

The Finnish company said today that revenue dropped to €8 billion from €10 billion as smartphone sales plunged 55% from a year earlier. 

Nokia gave a grim outlook, citing increased competition and lower than expected demand for its flagship Lumia phones and cheaper Asha models.

Nokia said it sold 15.9 million smartphones in the quarter, down from 19.6 million a year earlier, including 4.4 million Lumia phones. In all, it sold 45 million mobile phones in the period, 15% less than in 2011.

Chief executive Stephen Elop said he was encouraged that the company's strategy had reached "underlying profitability" and strengthened its financial position but cautioned that more cutbacks could be expected.

"We remain focused on moving through our transition, which includes continuing to improve our product competitiveness, accelerate the way we operate and manage our costs effectively," Elop said.

Elop said Nokia Siemens Networks "drove record profitability" during the quarter. The networks unit - a joint-venture with Germany's Siemens - saw its operating profit surge to €251m from €67m the previous year, while revenue was up 5% at €4 billion.

The unit has been loss-making for years but restructuring measures including substantial job cuts have improved its performance.