Nokia's earnings fell less than expected in the first quarter and the company signed a final agreement to start using Microsoft software, sending its shares 3 per cent higher.
Underlying earnings per share fell to 13 cent in the three months through March from 14 cent a year earlier, beating analysts' average forecast for 10 cent.
Nokia's market share fell to 29 per cent from 33 per cent as nimbler Asian rivals ate into its dominant position in cheaper phones and it continued to lose out in more expensive smartphones to Apple and others.
To turn around its smartphone fortunes, Nokia's new chief executive Stephen Elop in February unveiled a deal to start using Microsoft software instead of its own Symbian platform.
Nokia said the deal enables it to cut annual costs by around €1 billion.
"Finalisation of the agreement with Microsoft means Nokia can now focus on execution, but margin guidance underlines that difficult times lie ahead as it transitions the portfolio," said analyst Geoff Blaber from CCS Insight.
Nokia's key phone unit reported an operating profit margin of 9.8 per cent for January-March, well ahead of analysts forecast of 8.6 percent, but said for the full year the margin would fall to within a 6 to 9 per cent range.
Overnight Apple smashed Wall Street expectations and reported record quarterly iPhone sales, narrowing the gap to Nokia's smartphone volumes.
Qualcomm, the top wireless chip maker, also reported results that beat expectations and raised its outlook overnight, quelling fears of phone market slowdown.
"We expect Qualcomm ... to alter the entire handset sector sentiment after a spike in negativity in recent weeks," said analyst Tero Kuittinen from MKM Partners.
Analysts say that, despite its bigger bargaining power, Nokia is likely to be among the phone makers worst hit by the disruption to supplies from last month's devastating Japanese earthquake.
It makes 450 million phones a year, which means quick and big changes in component supply are difficult.
Nokia warned in March it would have shortages of some of its phones, but said the impact on earnings would be limited.
Nokia's smaller rival Sony Ericsson said this week there were shortages of displays, batteries, camera modules and some printed circuit boards due to the quake.
Reuters
