Nokia reported a smaller-than-expected loss for the quarter ending September 30, and shares in the firm rallied 9 percent. But sales of Nokia’s flagship Windows Phone handsets, the Lumia line, dropped 28 percent in the quarter, making the current quarter's launch of Windows Phone 8 products all the more important to the future—perhaps even the survival—of the company.

Nokia posted a net loss of $1.27 billion on net sales of $ $9.44 billion.

“As we expected, Q3 was a difficult quarter in our Devices & Services business,” Nokia CEO Stephen Elop admitted. “We continued to manage through a tough transitional quarter for our smart devices business as we shared the exciting innovation ahead with our new line of Lumia products.”

He added,“While we continue to focus on transitioning Nokia, we are determined to carefully manage our financial resources, improve our competitiveness, return our Devices & Services business to positive operating cash flow as quickly as possible, and ultimately provide more value to our shareholders.”

Nokia is about 18 months into a planned transition away from its aging smartphone platforms of the past and to Microsoft’s Windows Phone system. This transition has been difficult and slow, and according to Nokia, sales of its Lumia devices actually fell quarter-over-quarter for the first time, to 2.9 million units in Q3. (The firm sold 4 million Lumias in Q2.) The worst slowdowns in Lumia sales were in China and Europe, and not in the United States, as reported elsewhere.

Part of that shortfall was caused by Microsoft’s decision to break with the past with Windows Phone 8: No existing Windows Phone handsets, including the Lumia models currently in the market, are upgradeable to Windows Phone 8. So customers who want the new system will need to buy new devices.

Nokia, like rivals HTC and Samsung, is prepping powerful new multi-core handsets for Windows Phone 8. But unlike its Windows Phone competitors, Nokia is staking its future entirely on Microsoft’s platform. And this bet, to date, has not paid off at all.

Nokia’s new lineup of Windows Phone 8 handsets looks solid, but this time around the firm actually faces daunting challenges from new HTC devices, in particular, which are much stronger than previous HTC Windows Phones. And  Nokia also stands against the onslaught of Android handsets and Apple’s iPhone, both of which outsell Windows Phone by an order of magnitude. It’s unclear how this will change in the current quarter.

How bad is Nokia doing? With 6.3 million smartphones sold overall, Nokia’s aging, non-Lumia smartphones actually outsold Lumias in the quarter. And the top two smartphone makers, Samsung and Apple, sold 55 million and 27 million smartphones, respectively, in the same time period. It’s almost as if they’re not even competing in the same market.