NOKIA reported a smaller-than-expected decline in profit and will slash €1bn in expenses at the handset business as it seeks to regain lost ground through a partnership with Microsoft.
First-quarter net income fell 1.4pc €344m, beating analyst expectations.
Handset revenue rose 6.4pc to €7.09bn, surpassed for the first time by Apple's iPhone sales of $12.3bn (€8.4bn) in the same period.
Nokia, whose mobile phones based on its Symbian software have struggled to keep up with iPhone and Google's Android, signed a final agreement with Microsoft on the use of the US company's Windows Phone 7.
Chief executive Stephen Elop forecast operating margins in the Finnish company's handset business will decline further this quarter.
"They came in closer to the high end of the guidance which is good for the first quarter," said Alexander Peterc, an analyst with Exane BNP Paribas. "But their smartphone sales aren't sustainable in their current form because of the transition."
Nokia, which dropped as much as 4.3pc after the earnings announcement, rebounded and closed at 0.4pc higher, at the close of trading in Helsinki.
The world's largest maker of mobile phones has seen its market value shrink about 45pc in the past year to €22.3bn.
The stock has fallen 27pc since the February 11 agreement with Microsoft.
The €1bn target in reduced expenses from devices and services is for 2013, Nokia said.
The figure compares with spending of €5.65bn in 2010 and will include cuts in outsourcing and facility costs as well as job reductions, the company said.
"Because new programmes will be ramped up as others are transitioned, generally all employees can stay on the payroll through the end of the year," Mr Elop added.
Nokia will start talks with employee representatives about the scope of planned job cuts next week, he said.