By Zeba Fatima

Nokia has posted deep 2011 losses amid slumping handset sales and as its first Windows-based smartphone, aimed at boosting market share, struggled to gain traction.

Previously Nokia made phones that ran their own Symbian operating system but started producing Windows phones last year.

Nokia revealed a fourth-quarter net loss of $US1.38 billion, with sales down 21% as the Windows smartphones hit markets in Europe and Asia.

The loss, widened by a $US1.3 billion loss booked on Nokia's navigation systems unit, compares with a profit of $US976 million in the same period a year earlier.

Nokia said net revenue, including both its mobile phones and its network divisions, fell from $US16.5 billion in the fourth quarter of 2010 to $13.1 billion, with smartphone sales falling 23

In its earnings report, Nokia noted that it will also make software royalty payments to Microsoft.

“Over the life of the agreement, both the platform support payments and the minimum software royalty commitments are expected to measure in the billions of US Dollars,” the company said.

Microsoft is counting heavily on the Nokia partnership to regain traction in the mobile phone market. Nokia launched two Windows smartphones in Europe, and debuted its first Windows smartphone in the U.S., the Lumia 710, on T-Mobile earlier this month.

Nokia is set to start shipping Lumia phones to Canada next month and China and South America during the first half of this year.

"With Lumia, our specific intent has been to establish a beachhead in this war of ecosystems, and country by country that is what we are now accomplishing," said Nokia CEO Stephen Elop.