Nokia has recorded a surge in sales of its Lumia smartphones, but this was overshadowed by a sharp fall in basic phones sales.
But the Finnish company said basic mobile phone sales were down 21 per cent year-on-year and acknowledged the business faces a "difficult competitive environment", as the news sent its shares tumbling to year lows.
The interim report revealed Lumia sales increased 27 per cent quarter-on-quarter to 5.6 million units and said the group achieved operating profit for the third consecutive quarter, offering a glimmer of hope for the business.
The results come after Nokia launched its new £120 Lumia 520 which is equipped with super-sensitive touch-screen technology, meaning it can be used while wearing gloves.
But its telecoms equipment venture Nokia Siemens Networks saw a 30 per cent fall in sales to £2.4bn reflecting "industry seasonality", Nokia said.
Stephen Elop, Nokia's CEO, said: "At the highest level, we are pleased that Nokia Group achieved underlying operating profitability for the third quarter in a row. While operating in a highly competitive environment, Nokia is executing our strategy with urgency and managing our costs very well.
"We have areas where we are making progress, and areas where we are further increasing the focus. For example, people are responding positively to the Lumia portfolio, and our volumes are increasing quarter over quarter."
But he added: "On the other hand, 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.
"All of these efforts are aimed at improving our financial performance and delivering more value to our shareholders."
Stuart Miles, founder of technology and gadget site Pocket-lint, said: "These results are promising for Nokia, as it shows people are buying the new range of handsets.
“However it also shows that the company still has a long way to go before they are out of the danger zone. Promising, but very much a 'still wait and see'."
But some analysts say the results put renewed pressure on Elop, who was hired in 2010 to turn the Finnish mobile phone maker around after it fell behind rivals Samsung and Apple in the smartphone race.
He made the controversial decision to switch to Microsoft's untried Windows Phone software in early 2011 and had said the transition would take two years, a period that's now over.
Mikko Ervasti at Finnish investment banking and wealth management group Evli, says Elop is running out of time.
"Basically, he has only the second quarter," he adds.