Analysts claim that there is no evidence that either company will survive. In Australia, Nokia is set to slash jobs, close offices and may even operate using Microsoft as a distributor in an effort to cut costs say sources.

The move to work was initiated as both companies try to regain ground lost to the iPhone and Android-based devices.  Microsoft, who, despite a multimillion dollar marketing campaign last year was unable to convince consumers to buy their Windows Phone 7 devices has moved to partner with the Finish company Nokia, who has seen market share peeled away every quarter since the launch of the Apple iPhone and are now fighting for their very survival. 

The deal will see Nokia use the Windows phone operating system for its smartphones, the company said.

Speaking at the launch of the partnership, Nokia's chief executive Stephen Elop revealed that there would be "substantial" job losses as a result of the tie-up.

Nokia will remain "first and foremost...a Finnish company. Finland is our home and will remain our home," he said.

Job losses around the world, including in Finland, will be inevitable, he added.

It's also expected that both companies will move to common marketing partners spanning advertising, PR and eMarketing.

The tie-up, announced in London by Elop and Microsoft boss Steve Ballmer, is a dramatic attempt to compete in what Elop called "the war of ecosystems" against rivals' offerings. It means that by mid-2012 Nokia will phase out the Symbian OS, which was developed by British firm Psion and made Nokia the world's leading smartphone vendor.

Nokia's shares fell by 14.2% on a day of heavy trading, while Microsoft's shares dipped 0.5% in early trading in the US. However, analysts saw the move as the only viable one for Nokia, which has recorded three quarters of falling profits.

Elop, who joined Nokia from Microsoft's Office division in September, determined that the company's only hope of long-term competitiveness was to make the dramatic move. In a memo posted on Nokia's internal blog earlier this week he told staff that the company was "standing on a burning platform" and that "we're not even fighting [Apple and Google] with the right weapons". He added that Chinese rivals were turning out new devices "in the time it takes us to polish a PowerPoint presentation" and warned "the battle of devices has now become a war of ecosystems".

At Nokia's Finnish headquarters, about 1,000 employees have walked out on Friday over concerns about the fate of those working on Symbian. "About half the workforce walked off the job," said Harri Törmänen, president of the supervisory staff association.