Despite being the largest handset manufacturer in the world by a healthy lead, with 453 million handsets shipped in 2010, Nokia is increasingly vulnerable due to its inability to gain traction in the growing smartphone market.

It’s a view that’s clearly shared by Nokia CEO Stephen Elop. In a candid internal memo recently leaked to the blogosphere, the former Microsoft man wrote: “The first iPhone shipped in 2007, and we still don’t have a product that is close to their experience. Android came on the scene just over two years ago, and this week they took our leadership position in smartphone volumes. Unbelievable.”

Just days after the leak, Nokia and Microsoft announced a strategic alliance that will see Windows Phone 7 become the Finnish handset manufacturer’s primary smartphone platform. And the partnership isn’t the only change in store for Nokia. On April 1, the handset giant will introduce two main business units: Smart Devices and Mobile Phones. Meanwhile, its Symbian platform will become a “franchise platform, leveraging previous investments to harvest additional value”. The restructure follows Elop’s memo revelation: “Symbian is proving to be an increasingly difficult environment in which to develop to meet the continuously expanding consumer requirements… Nokia, our platform is burning.”

In a marked difference to the frustrated tone of the internal letter, Elop and Microsoft’s Steve Ballmer sounded buoyant in their joint statement announcing the alliance:
“There are other mobile ecosystems. We will disrupt them. There will be challenges. We will overcome them. Success requires speed. We will be swift. Together, we see the opportunity, and we have the will, the resources and the drive to succeed.”

So will the Nokia-Microsoft deal finally see both companies make inroads on the smartphone market? If online opinion’s anything to go by, then neither Apple or Android should lose sleep anytime soon.
TechWench sagely summed up the general mood on the interwebs following the announcement: “With stock prices having dropped 14% in the day following the announcement, it is clear that investors are not too happy with the announcement.”

“Nokia had invested millions of dollars and, more importantly, years of time in Symbian. In just one announcement, they effectively said that the promises they had been making for years were all false.”