Microsoft paying Nokia more than $1 billion in Windows Phone 7 partnership

Microsoft will pay Finnish phone company Nokia more than one billion US Dollars as part of the pair's new Windows Phone 7 partnership according to reports.

Dina Bass, writing for Bloomberg's Business Week claims that sources close to the matter have told Bloomberg that the Redmond outfit will make a payment upfront, even before Nokia starts to ship finished hardware to customers.

As part of the yet-unsigned deal, Nokia will pay an undisclosed fee to Microsoft for each copy of Windows Phone 7 sold, though reduced costs in its own software development will offset this expenditure according to an un-named source. Last year Nokia spent a staggering 3 billion Euros in R&D and it's believed the firm could cut as much as a third of that moving forward.

The deal, which is believed to run for five years is expected to be beneficial for both parties, with Microsoft gaining a new partner with a track record for impressive hardware, and Nokia being able to reduce costs while still being in possession of a potentially strong software platform for its handsets.

While news of the Microsoft deal has hit Nokia share prices hard - shares fell 26 percent after the announcement - few would argue the Finnish giant's existing hardware and software lineup was a successful one. With Nokia's operating margins reducing year on year, and market share being devoured by Apple's iPhone and Google's Android OS, Nokia's outlook was bleak. 

It's not all been plain-sailing for Microsoft's OS of late either. A recent software update to Windows Phone 7 had to be pulled due to an issue with certain Samsung hardware. The platform has also had its critics both in the media and on the high-street due to the lack of basic features such as copy & paste as well as multi-tasking. 

Many believe the partnership between Nokia and Microsoft was one borne more out of desperation than choice on Nokia's part. Whether it will be the correct deal to make in the long-term remains to be seen.

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