Nokia (News - Alert) produced better-than-anticipated sales in the third quarter, surpassing analysts’ predictions during what has been a transitional period for the Helsinki, Finland-based company.

Revenue of 8.98 billion euros, or $12.2 billion, was slightly ahead of analysts’ average expectation of $12.16 billion, according to those surveyed by Thomson (News - Alert) Reuters, reported CNET. The smartphone maker reported strong operating cash flow with net cash of EUR 5.1 billion at end of Q3 2011.

Nokia CEO Stephen Elop was cautiously optimistic saying that while the company worked through a difficult transition period, Nokia will continue to pursue “steady improvement.”

“I am encouraged by the progress we made during Q3, while noting that there are still many important steps ahead in our journey of transformation. With each step, you will see us methodically implement our strategy, pursuing steady improvement through a period that has known transition risks, while also dealing with the various unexpected ups and downs that typify the dynamic nature of our industry,” Elop said in a prepared statement. “During the third quarter, we continued to take the action necessary to drive the structural changes required for Nokia’s long-term success,”

Nokia, which is partway through moving from its own operating systems to Microsoft’s Windows Phone (News - Alert), still has obstacles ahead. The company’s revenue was down 13 percent compared to the year-earlier quarter, and including one-time items, the company had a loss of 2 cents per share, CNET said.

“In Q3 we started to see signs of early improvement in many areas, but we must continue to focus on consistent progress so that we can move Nokia through the transformation and deliver superior results to our shareholders,” Elop added.

However, Nokia’s chief executive told investors he is encouraged by the company’s progress around its transition to the Windows phone.

“We look forward to bringing the experience to consumers in select countries later this quarter. We then intend to systematically increase the number of countries and launch partners during the course of 2012,” Elop said.

In trading before the market opened, Nokia’s stock rose 62 cents, or 10 percent, to $6.74, CNET reported.

Microsoft (News - Alert) is contributing about $32 million (or 20 million pounds) to fund a series of ads for Nokia’s Windows Phone in the U.K. this holiday season, Business Insider said, citing a report from U.K.-based Mobile Today.

“A source told Mobile Today that the money will fund a massive cross-media campaign for Nokia’s Windows phone, and that Microsoft is ‘desperate to kick the hell out of Android (News - Alert),’” according to the report.