HELSINKI (Reuters) - Nokia Oyj NOK1V.HE reported a 73 percent fall in fourth-quarter earnings as sales of its new Windows Phones failed to dent the dominance of Apple Inc's (AAPL.O) iPhone or compensate for diving sales of its own old smartphones.
The world's largest cellphone maker by volume unveiled a year ago a major strategy shift to Microsoft Corp (MSFT.O) software for its smartphones in an attempt to challenge Apple and Google Inc's (GOOG.O) Android. But Apple's phones in particular have proved far more popular.
Apple reported earlier this week sales of 37 million iPhones for the December quarter. Nokia has sold over 1 million Windows 'Lumia' Phones, since its launch in mid-November.
"It is more than some were expecting, but it's not going to worry Apple or Google," said analyst Nick Dillon from research firm Ovum.
Nokia said it expected its phone business' underlying earnings to be around breakeven in the first quarter, well below analysts forecasts, with sales falling more than usual in the seasonally weaker quarter.
"The report highlights that the start of the Windows strategy is slow, and we have very little concrete data to predict its success at this point," said analyst Michael Schroder from FIM Securities.
"There are a lot of uncertainties. These are critical times for the future of the whole company. The next months will be extremely important".
Ben Wood, head of research at mobile consultancy CCS Insight, compared Nokia to a late starter in a marathon, saying it needed to move fast: "The reality is that it's going to have to be an exceptionally fast marathon if it wants narrow the gap with its rivals".
To close the gap, Nokia will need to move quickly to push out the phone into more markets and with secure more partners.
Windows Phones have only been released in 15 markets so far, meaning Nokia has yet to take full advantage of its worldwide sales force -- a presence that could help boost sales fast.
In the United States, it has partnered with No. 4 U.S. carrier T-Mobile (DTEGn.DE) to enter the U.S. smartphone market, and has yet to break into two of the other largest smartphone markets in the world -- China and Japan. A ramp up in those countries could help Nokia close the gap with rivals.
Analysts said Nokia also needed to focus on marketing and sales channel to drive Lumia sales volumes.
"They need to market the hell out of it," said Gartner analyst Carolina Milanesi. "Android is still an easy sale. Nokia needs to convince the sales people in stores to sell Nokia."
Nokia's fourth-quarter core earnings per share of 0.06 euro were better than the market's expectation for 0.04 euro. The results were boosted by a $250 million payment from Microsoft as part of the Windows Phone sales deal.
Shares in the Nokia were up 1 percent to 4.10 euros at 1526 GMT, regaining some ground lost over the past week following poor results from its suppliers.
Nokia proposed a 0.20 euro-per-share dividend for 2011, slightly more than expected.
The board put forward Risto Siilasmaa as its next chairman replacing long-time leader, Jorma Ollila, who steps down in May.
Nokia's quarterly net loss totalled 1.1 billion euros, or 0.29 euros per share, due to a 1.1 billion writedown for its digital mapping assets.
Microsoft has tried to enter the mobile industry for more than ten years, but with little success. Its market share is 1-2 percent. Canalys analyst Pete Cunningham said Microsoft's deal with Nokia was make or break for its ambitions in this sector.
"Nokia gives Microsoft a chance to enter the big stage. If they cannot make it work, arguably this is the end of the road," he said.
Additional reporting by Jussi Rosendahl, Terhi Kinnunen and Eero Vassinen; Editing by Jodie Ginsberg and Erica Billingham