Nokia said on Friday 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 cellphone maker.
Microsoft's Windows Phone platform is widely recognized by industry experts as a leading edge technology but has not yet gained success among consumers.
"This is a partnership born out of both parties' fear of materialization at the hands of Apple and Google but there is no silver bullet," said analyst Geoff Blaber from CCS Insight.
Nokia has rapidly lost share in the higher-margin smartphone market to the likes of Apple's iPhone, and products based on Google's Android platform claimed the top spot from the company last quarter.
"This is a very frank admission that Nokia's platform strategy has failed and underlines the seriousness of Nokia's position. Such a move would have been unthinkable just 12 months ago," Blaber added.
In a bid to stem the losses, Chairman Jorma Ollila brought in Elop from Microsoft last September. The 47-year-old is the first non-Finn to head the company.
Nokia said 2011 and 2012 would be transition years for the company as it built up the partnership with Microsoft.
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.