Nokia and Microsoft have teamed up to take on Google and Apple in the fast-growing smartphone market as the Finnish mobile phone maker attempts to regain its leading position in the sector.
Nokia said it would use Windows Phone as the software platform for its smartphones as part of new chief executive Stephen Elop's overhaul of the world's biggest mobile phone maker.
However, investors have not been convinced by Elop's eagerly anticipated strategy announcement with shares in Nokia tumbling more than 11 per cent as the market reacted to Nokia saying that 2011 and 2012 would be "transition years" as it builds up the partnership.
The deal marks a major breakthrough for Microsoft after years of struggling to establish itself the mobile market. Its Windows Phone had a mere 2 per cent market share in the last quarter.
Microsoft's Windows Phone platform is widely recognised by industry experts as having a leading edge technologically but has not yet gained success among consumers.
Nokia has rapidly lost share in the higher-margin smartphone market to Apple's iPhone, and products based on Google's Android platform, which claimed the top spot from the company last quarter.
In a bid to stem Nokia's losses, Chairman Jorma Ollila brought Elop in from Microsoft last September. The 47-year-old is the first non-Finn to head the company. Nokia said in a statement it would stick with its current management team, with only one senior executive to leave.
There had been speculation of a wider cull at the company. Nokia also said it would use Microsoft's Bing search engine across its mobile phones, potentially opening up a huge market for Microsoft as it seeks to build up its challenge to Google as the world's leading search engine.