Update: Nokia sees improving Windows Phone sales and shrinking loss in Q1

The company sold 5.6 million Lumia devices running Windows Phone in the first quarter

Nokia's sales of smartphones running Windows Phone continued to grow in the first quarter, and its net loss shrank year on year, even as overall revenue declined.

The company reported first-quarter sales of €5.85 billion ($7.63 billion), down 20 percent year-on-year, and a net loss of €272 million, smaller than the year-earlier loss of €928 million.

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Nokia sold a total of 61.9 million mobile phones during the first quarter, of which 6.1 million were smartphones (including 5.6 million Lumia devices). A year earlier, it sold 82.7 million phones, of which 11.9 million smartphones, and more than 2 million of those were Lumia devices. (Nokia does not categorize phones in its Asha range, even the touch-screen models, as smartphones.)

To help boost Windows Phones sales -- especially in the U.S. -- Nokia is working on new products, CEO Stephen Elop said during a conference call presenting the results.

"Later this quarter a new Lumia device is anticipated to have hero status with a leading U.S. operator, an event which will mark the beginning of a season of new product introductions," Elop said.

"Hero status" means a smartphone that has the top spot in stores, and also attracts premium subsidies and additional marketing spend, according to Elop.

Nokia is reportedly working on a thinner and lighter version of the Lumia 920 for Verizon Wireless, a new high-end model with an aluminium chassis and a model with a camera similar to the 41-megapixel sensor on Nokia's Symbian-based 808 PureView.

Elop also said that consumers should look to Nokia to "continue to advance the state of the art" in imaging and hinted that the company will push "broader form factors". On Thursday, the Financial Times reported that Nokia is working on a device that will compete with Samsung's Note II, which has a 5.5-inch screen.

Since a year ago, Lumia's fortunes have gone up and down: Nokia sold 4 million in the second quarter; 2.9 million in the third quarter and 4.4 million in the fourth. But the increase seen during the first quarter is good news, according to Blaber.

"This is undoubtedly a sign that its moving in the right direction," Blaber said.

The timing of this sales boost is critical because of the pressure Nokia's mobile phones have come under, as overall unit sales dropped by 25 percent. It is clear that Series 40-based phones, and the Asha range in particular, are coming under pressure from Android, according to Blaber.

"This is the first quarter in a very long time where the smartphone business is showing more positive signs than the mobile phone business," Blaber said.

Nokia is aware of the problems.

"Our Mobile Phones business faces a difficult competitive environment, and we are taking tactical actions and bringing new innovation to market to address our challenges," it said in a statement.

Nokia's device and services revenue improved in only one part of the world, North America. But looking at device volumes, the size of Nokia's challenge in the region becomes clear. It only sold 400,000 units, which is a 33 percent decrease compared to the same period last year. However, the biggest drop was recorded in the important Chinese market where unit sales went from 9.2 million to 3.4 million.

Sales of smartphones running Windows Phone during the first quarter came on the back of the products Nokia launched at the end of last year, including the Lumia 920, according to Geoff Blaber, analyst at CCS Insight. The low-end Lumia 520 and Lumia 720, which the Finnish phone maker announced in February at Mobile World Congress, have yet to have an effect on the numbers.

"The likes of those lower end devices we expect are going to have a more positive impact during the second quarter," Blaber said.

Even if Nokia is moving in the right direction, it can't afford to rest on its laurels. There are two things the company now needs to add, according to Blaber.

"First of all, there is still a gap between where Windows Phone stops and where Asha starts, so there are still lower price points it needs to address. Second of all, there is also a requirement for a more differentiated flagship, high-tier device with a more premium metal finish," Blaber said.

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