Nokia Corp., the world's largest cell phone maker, said Friday it will use Microsoft Corp.'s Windows Phone software as the main platform for its smart phones in an effort to recover lost share from Apple's iPhone and Android, Google's software for phones and tablets.
The move marks a major strategy shift for Nokia, which has previously equipped devices with its own open-share software. Analysts said the deal was a bigger win for Microsoft than Nokia, whose CEO Stephen Elop in a leaked memo this week compared his company to a burning oil platform with "more than one explosion ... fueling a blazing fire around us."
Nokia share price plummeted 14 percent to ¿7.00 ($9.52) in late trading in Helsinki.
The partnership will "deliver an ecosystem with unrivaled global reach and scale," Nokia said, but warned that it would also bring "significant uncertainties" and it expects profit margins to be hit by strong competition from rivals.
Elop, a Canadian national, joined Nokia from a senior executive position at Microsoft last year. The first non-Finn to lead Nokia, he is under intense pressure to reverse the company's market share losses to North American and Asian competitors.
"Nokia is at a critical juncture, where significant change is necessary and inevitable," Elop said. He added the company was aiming at "regaining our smart phone leadership, reinforcing our mobile device platform and realizing our investments in the future."
Elop warned of major restructuring which would result in more global layoffs, saying Nokia must "improve the speed and nimbleness and agility of the organization," but gave no details.
Nokia is still the biggest handset maker but its market share has tumbled from 41 percent in 2008 to 31 percent at the end of 2010.
It has also lost its innovative edge in the fiercely competitive top-end sector and is virtually invisible - with a 3 percent share - in the world's largest smart phone market, North America.
Apples' iPhone has set the standard for today's smart phones and Research In Motion Ltd.'s BlackBerrys have become the favorite of the corporate set. More recently, Google Inc.'s Android software has emerged as the choice for phone makers that want to challenge the iPhone.
Speaking to analysts in London, Elop declined to say when Nokia would introduce a new device running on Windows Phone. But he said Nokia won't bury its own Symbian operating system or the new MeeGo platform that it is currently developing.
More than 200 million phones, with 150 million more expected on the market, use Symbian technology, seen by some developers as clumsy and dated. At the end of last year it was surpassed by Android as the world's No. 1 smart phone software, according to the Canalys research firm.
Microsoft CEO Steven Ballmer said the new partnership with Nokia would give them "more innovation (and) greater global reach." The two companies will "collaborate closely on development ... so we can really align and drive the future revolution of the mobile phone," he said.
A key challenge will be to produce quality devices with a hip factor that helps position Windows Phone as an attractive alternative to iPhone or Android. in a market where image plays a central role.
Windows Phone 7, launched last year, has a lot of catching up to do both in the number of users and "apps" available for the phones.
Nokia said its input in the partnership will include areas "such as imaging, where Nokia is a market leader" and map services, while the new device will use Microsoft's Bing search engine.
Neil Mawston from Strategy Analytics in London said Microsoft would benefit more from the partnership.
"In terms of expanding their distribution reach, this is a huge win for Microsoft," he said.
For Nokia the deal leaves uncertainty about Symbian, which Mawston said he expects to be phased out within two years and "completely, or at least mostly, replaced by Windows Phone."
Elop said Nokia will announce a new leadership team and organizational structure "with a clear focus on speed, results and accountability," sending shivers of unease through Finland which prides itself on a company that grew from making paper and gum boots into a global high-tech leader.
Elop acknowledged the layoffs would also hit Finnish units, where most of Nokia's research is carried out, but said there were no plans to move company headquarters from Finland.
Several hundred workers at Nokia's Tampere unit in southern Finland left work early on Friday, in a demonstration of concern about their future.
"They are worried. They want the information (about possible layoffs) as soon as possible, but I don't think it even exists yet," said Kari Kiila, a union representative at the Tampere plant.
Nokia, which claims 1.3 billion daily users of its devices, said it hopes the partnership with Microsoft will lead to capturing the next billion users to join the Internet in developing growth markets.
Jyrki Ali-Yrkko, from the Research Institute of the Finnish Economy, said the partnership was "surprising."
"The strengths will be in Microsoft's strong position in various corporate solutions and server solutions, but its weakness is that Microsoft perhaps doesn't have a broad, user-oriented group of developers like those around Android or Apple," Ali-Yrkko said.
The Espoo-based company, near Helsinki, employs 132,500 people - 7 percent more than a year ago.