Nokia reported a 39 per cent drop in the number of smartphones it sold in the second quarter compared with the same period last year, to 10.2 million. The company's net loss more than trebled.
The company's total revenue for the quarter fell 19 per cent year on year, to €7.54bn (£5.88bn), while its net loss widened to €1.53bn (£1.19bn) from €492m (£384.2m) a year earlier.
The company sees little scope for improvement in the months ahead, forecasting that the operating loss in its phone business will continue at the same level through the third quarter, and could worsen.
"We have limited near-term visibility in the devices and services business," said CFO Timo Ihamuotila in a conference call with analysts.
€400m (£312.3m) of that revenue came from Nokia's patent portfolio, although that level of licensing revenue cannot be guaranteed in future quarters, said CEO Stephen Elop during the conference call.
Smartphone sales were the hardest-hit sector, as the company makes the difficult transition from its own Symbian operating system to Microsoft's Windows Phone OS.
Most of the 10.2 million smart devices it sold were older models running Symbian.
It shipped justfour million Lumia smartphones running the Windows Phone OS. Windows Phone has yet to make its mark, with Android and Apple's iOS still taking the lion's share of the market.
The conversation is still going on with operators about building a third ecosystem for Windows Phone OS alongside the networks of developers and app stores that already exist for Android and iOS, said Elop.
"We have also been encouraging other manufacturers to participate in the Windows Phone ecosystem [to compete with Android and iOS]", he said.
That Nokia is having more success in the US than in Europe is not surprising, said Carolina Milanesi, research vice president at Gartner.
"They're really trying to change the brand perception in Europe, where Nokia is seen as appealing more to parents than to kids. It's easier in the US because consumers don't really have a recollection of Nokia as a brand. It's easier to recreate the brand in a market that forgot you."
News that existing Lumia models will not be compatible with Windows Phone 8, the next major upgrade to the OS, may dampen enthusiasm for the phones, although Nokia has promised that existing phones will receive many of the expected new features through an interim upgrade, Windows Phone 7.8.