Shares in the world's largest cellphone maker fell sharply on uncertainty about the financial impact of Nokia's new chief executive Stephen Elop's strategic u-turn which will use Microsoft's Windows Phone software in its smartphones.

It is now a three-horse race, said Elop, who was recruited from Microsoft last September to turn Nokia around.

The deal marks a potential breakthrough for Microsoft, which should get its software into upwards of 30million smartphones sold by Nokia every quarter, but the software company's shares fell slightly as investors considered its merits.

This is all going to be about execution, said Michael Gartenberg at research firm Gartner. Can they get US carriers excited about a Windows device that's built by Nokia?

''They made the leap, but that just buys you a few seconds. Now you have to decide what happens when you hit the water. Nokia plans to use Microsoft's Bing search engine across its cellphones, a huge boost for Microsoft as it seeks to challenge Google as the world's leading search engine.

The partnership will mean thousands of job cuts at Nokia globally,with a dramatic reduction in research and development spending.

Investors were unconvinced by Elop's new strategy, and Nokia shares tumbled 10 after it said 2011 and 2012 would be transition years, fuelling fears of a margin hit.

Nokia said its operating margin in the phone business would be 10 or more after the transition period. Analysts had expected margins to rise to 11.4 in 2012.

Changes have to be made. I hope it's not too late, said Alan Lancz, president of Alan B Lancz Associates, which holds Nokia stock

Nokia has rapidly lost share in higher-margin smartphones as Apple's iPhone, and products based on Google's Android platform, have revolutionised the market