Nokia, Microsoft announce plans for a broad strategic mobile partnership

Nokia (NYSE:NOK) announced that it will jointly create phones with Microsoft (NASDAQ:MSFT) where Nokia will use Microsoft's mobile Windows operating system as its primary software platform. The moves comes as both companies look to challenge the dominance of Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) in the smartphone marketplace.

Nokia reported that it expects 2011 and 2012 to be "transition years" as the company invests the time and resource to build out its ecosystem with Microsoft. The company then stated it expects its device and service business to grow faster than the market and yield operating margins of at least 10%.

Shares of Nokia fell sharply on the announcement, by as much as 12%, as traders view the announcement as a quasi-admission that its existing Symbian platform has been a failure and the belief that the company may have fallen too far behind both Apple and Google in the smartphone market.

The announcement comes just days after news reports revealed an internal Nokia memo written by CEO Stephen Elop who analogized the company's position in the smartphone market to a burning platform and that the company has continued to pour more fuel on the fire.

With respect to today's announcement of a deal with Microsoft, Elop said, "'Today, developers, operators and consumers want compelling mobile products, which include not only the device, but the software, services, applications and customer support that make a great experience. 'Nokia and Microsoft will combine our strengths to deliver an ecosystem with unrivalled global reach and scale. It's now a three-horse race."

Shares of Microsoft are up nearly 1% in pre-market as the software company emerges as a clear winner in this new relationship.

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