Nokia Loses $1.25 Billion Amid Windows Phone SwitchNokia Loses $1.25 Billion Amid Windows Phone Switch

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Nokia said Thursday that it recorded an operating loss of $1.25 billion in the fourth quarter as unexpectedly high Windows Phone sales and a $250 million payment from Microsoft weren't enough to compensate for worse than anticipated declines in the Finnish company's legacy smartphone lines.

Net sales fell 21% year-over-year, to $13.2 billion, while earnings came in at a loss of 38.1 cents per share.

Nokia is in the midst of a transition in which the company is porting virtually all of its smartphone products to Microsoft's promising but unproven Windows Phone OS, and phasing out its Symbian-based devices in all but a handful of markets. Windows Phone has won praise from numerous reviewers, but it has yet to catch on with consumers, who are also snubbing Symbian phones in the face of Nokia's decision to effectively abandon the platform.

[ What does Apple think about the prospects for Windows Phone? Read Apple CEO: Three Horses In Smartphone Race. ]

Nokia said it sold more than 1 million Windows Phone 7-based Lumia smartphones during the quarter. That was more than expected, "but those numbers are exceedingly small when compared to competing Android and iOS platforms," said Technology Business Research analyst Ken Hyers.

Android currently holds 52.5% of the worldwide smartphone OS market, according to Gartner, while Apple's iOS held 15%. Microsoft's share was just 1.5%. Symbian's share of 16.9% was higher than Apple, but it was down from 36% in the third quarter--an indication of the rate at which consumers are snubbing the Nokia's older platform.

Nokia is now counting on the Lumia franchise to boost its numbers. At his CES keynote with Ryan Seacrest earlier this month, Microsoft CEO Steve Ballmer said the Lumia 900, which is geared to run on AT&T's high-speed LTE network, would be "heavily promoted" in all of the carrier's 2,400 U.S. stores. He did not disclose a ship date, but some industry sources have said the device will arrive in the U.S. in March.

Nokia CEO Stephen Elop, a former Microsoft executive, said he expects to make steady progress in building market share for Lumia phones. "Our specific intent has been to establish a beachhead in this war of ecosystems, and country by country that is what we are now accomplishing," Elop said in a statement.

In its earnings report, Nokia revealed that Microsoft paid it $250 million for Windows Phone "platform support" in the fourth quarter, and that future payments would total in the billions of dollars.

The size of those payments could reignite speculation, which surfaced earlier this month, that Microsoft may be preparing to acquire Nokia's phone business outright. Such a move would allow Microsoft to counter Google's $12.5 billion deal to acquire Motorola's handset business. Like Google, Microsoft's purchase of a hardware OEM could give it a slew of mobile technology patents, which it could use to initiate or fend off patent suits.

Nokia said it could not provide earnings guidance for 2012, in part due to uncertainties surrounding its move to Windows Phone. "We are in the heart of our transition," said Elop.

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