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Nokia, Microsoft in pact to rival Apple, Google

Nokia and Microsoft teamed up to build an iPhone killer on Friday in a desperate attempt to take on Google and Apple in the fast-growing smartphone market.

business Updated: Feb 11, 2011 23:45 IST

Nokia and Microsoft teamed up to build an iPhone killer on Friday in a desperate attempt to take on Google and Apple in the fast-growing smartphone market.

In a strategic u-turn, Nokia said it would use Microsoft's Windows Phone as the software platform for smartphones.

"It's now a three-horse race," chief executive Stephen Elop said.

Investors were not convinced by Nokia's announcement and the company's shares tumbled more than 11%.

The deal would have a negative impact on Nokia's margins in the short-term, analysts said. Nokia said its operating margin would be "10% or more" after the transition period.

"They've announced a big tie-up with Microsoft but at the same time they haven't cut R&D. Given that the people who were positive on the stock were looking for mid-teens devices margins by 2012, we can see some cuts to estimates," said Richard Windsor, global technology strategist at Nomura.

The deal marks a major breakthrough for Microsoft which has struggled for years to establish itself in wireless.

Its Windows Phone platform, with a 2% market share in the last quarter, is widely recognised by industry experts as a leading edge technology but has not gained success among consumers.

Nokia has lost share in the higher-margin smartphone market to iPhone, and products based on Google's Android, which claimed the top spot from the company last quarter.

Nokia also said it would use Microsoft's Bing search engine across its cellphones, 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.

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