Mobile phone maker Nokia Corp. on Thursday posted a loss of 368 million euros ($523 million) in the second quarter and for the first time was overtaken by Apple's iPhone in smartphone shipments.
Nokia, which posted a profit of 227 million euros in the same period in 2010, said revenue fell 7 percent to 9.3 billion euros from 10.0 billion euros last year.
It shipped 88.5 million mobile devices in April through June, down from 111 million a year ago and 108.5 million in the previous quarter.
Its smartphone volumes fell to 16.7 million units, which means Nokia is no longer No. 1 in the smartphone sector. Apple Inc. sold more than 20 million iPhones in the same quarter, lifting its net income to a stronger-than-expected $7.31 billion.
"The challenges we are facing during our strategic transformation manifested in a greater than expected way" during the quarter, CEO Stephen Elop said. "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."
Nokia's share rose 4 percent to 4.23 euros on the Helsinki Stock Exchange.
Nokia said it was accelerating its cost-cutting plan to exceed the previously targeted savings of 1 billion euros in 2013. The reductions would be achieved through cuts in staff and oustourced professionals, facility costs "and various improvements in efficiencies," the company said.
While that could improve the company's finances, Nokia needs to take quick action to develop new products or it will continue to lose ground to its rivals, said Neil Mawston of London-based Strategy Analytics.
"Pretty much everything is heading in the wrong direction," Mawston said. "Nokia has to move with lightning speed to upgrade their portfolio."
He said he expects Samsung of South Korea to also surpass Nokia in smartphones when it releases its second-quarter earnings next week.
Nokia rose to the top position in the cell phone business in the late 1990s when it overtook Motorola. Although it struggled in the U.S., it dominated almost everywhere else, primarily through mass sales of low- and mid-priced mobile phones.
Now, Nokia is being squeezed in the low end market by Asian manufacturers like ZTE and in the high end by the makers of smartphones like the iPhone and Blackberry devices. Its global market share dropped below 30 percent earlier this year for the first time in more than a decade.
Nokia's share price has nearly halved this year, falling below €4 this month.
The Espoo, Finland-based company hopes to regain momentum through a linkup with Microsoft, whose Windows Phone operating system will replace Nokia's Symbian software. Symbian has been losing ground to Google's popular Android platform. Nokia expects to launch its first Windows phones later this year.
"While the tie-up with Microsoft is likely to yield results from 2012 onwards, Nokia is clearly in survival mode as it pushes ahead with a painful cost-cutting exercise," said Manoj Ladwa, a senior trader at ETX Capital in London.
Analyst Mikko Ervasti at Evli Bank in Helsinki found some positive news, in that the average selling price of a Nokia handset fell to 62 euros, down from 65 euros in the first quarter. Elop earlier this year hinted that the company would start lowering its prices to compete with low-end rivals, particularly in China.
Another bright spot: Nokia reported 430 million euros in royalty income in the quarter, following a legal victory over Apple. The U.S. company last month agreed to pay Nokia a one-time sum to settle long-standing patent disputes as well as royalties for current licenses.