LONDON — Nokia, the world leader in mobile phones, said Friday that it would discard its own cellphone operating system for software made by Microsoft, an alliance of market leaders intended to shore up their halting efforts in smartphones.
The announcement by Stephen Elop, the former Microsoft executive hired by Nokia in September as chief executive, was a dramatic admission of failure by Nokia, which helped define the mobile communications age in its infancy.
At the same time, the alliance, revealed ahead of a Nokia investors’ conference in London, was a bold gamble, perhaps a last-ditch effort for both Nokia and Microsoft, which dominates the desktop and laptop software market, to gain a lasting foothold in the booming smartphone business.
This year, mobile devices like smartphones — Internet enabled cellphones — are expected to surpass desktop and laptop computers as the main way to gain access to the Internet, a seismic change that is rewriting the rules for software makers and the Web businesses that depend on Internet contact.
“Nokia is at a critical juncture, where significant change is necessary and inevitable in our journey forward,” said Mr. Elop, a Canadian who led Microsoft’s business software division before moving to Nokia to become its first non-Finnish chief. “Today, we are accelerating that change through a new path, aimed at regaining our smartphone leadership, reinforcing our mobile device platform and realizing our investments in the future.”
During a joint appearance at the investors’ conference with the Microsoft chief executive, Steven A. Ballmer, Mr. Elop said the new software alliance would present a formidable challenge to Apple and to Google, the maker of the Android open-source software operating system. Nokia held meeting with Google and considered Android, Mr. Elop said, but was wary that Google, not Nokia, would benefit from a alliance.
Android, which Google gives away to phone makers to expand its advertising-driven search business, is widely used by Samsung, LG, HTC, Huawei, Motorola, Sony Ericsson and ZTE. Nokia risked becoming a commodity maker of mobile phones by ceding software to Google, Mr. Elop said.
An alliance with Google, he said, “felt like giving up, not like fighting back.” With Microsoft, Mr. Elop said, “this is now a three-way horse race.”
But investors greeted the news skeptically. Nokia shares fell 14.2 percent in Europe. Microsoft shares were down 1.5 percent in afternoon U.S. trading.
Mark Sue, an analyst at RBC Capital Markets who attended the investors’ conference, compared the alliance to “two unpopular kids in high school with rich parents suddenly becoming prom king and queen.” He added: “It was clear that Nokia needed to do something different. But there is a lot of skepticism about whether this will work.”
Mr. Elop said the alliance with Microsoft would extend beyond using Microsoft Phone software on Nokia smartphones. Nokia’s mapping software, Nokia Maps, will also be used in Microsoft’s Bing search engine, Mr. Elop said. Nokia’s Ovi software services business, a major effort by the company to match Apple, will disappear and become part of Microsoft’s Marketplace application and services platform.
He said the alliance would coincide with a reorganization of Nokia, a 145-year-old Finnish company that began in forestry and once made rubber boots. The shake-up would result in “significant” job cuts, the scope and location of which he said remained to be determined after talks with labor groups. The company as of December employed 132,427 workers around the world.
In a major coup for Microsoft, Mr. Elop said that Nokia was compensating the U.S. technology company for using its Windows Phone software, in accord with Microsoft’s license-driven business model. But both he and Mr. Ballmer emphasized that their alliance extended beyond simple software, which would affect the ultimate terms of their business deal.
During a joint interview with Mr. Elop, Mr. Ballmer dismissed the initial market reaction and skepticism surrounding the alliance. “Objectively, is today a better day or a worse day for Microsoft?” Mr. Ballmer asked rhetorically. “Objectively, is today a better day or a worse day for Nokia? Ding! It’s a better day for both. So whatever people thought yesterday, they should think something a lot more positive today.”