Shares in Nokia fell 14 per cent on Friday after its announcement of a strategic allegiance with Microsoft failed to convince investors that the handset maker could fight back against Apple and Google in the smartphone market.

Stephen Elop, who left Microsoft to take over as Nokia chief executive last year, said the deal offered the best chance for the two companies to create a software platformcapable of challenging Apple's iOS and Google's Android operating systems.

"It's now a three-horse race," he told investors in London, declaring that Microsoft's Windows platform would become Nokia's main operating system.

But investors were alarmed by his warning that the Finnish group faced two years of transition and "significant uncertainty" over margins and profit as it worked to implement the strategy.

There was disappointment over a lack of detailed commitment to cutting Nokia's research and development costs - by far the highest in the mobile industry - which had been assumed to be one of the main benefits of striking a software partnership.

More broadly, analysts questioned what was to be gained from a combination of two jaded brands that have both been put in the shade by Apple and Google.

Pierre Ferragu, analyst at Bernstein, said that, given the widely accepted need for Nokia to become nimbler and less bureaucratic, a partnership with "another heavy giant" such as Microsoft "doesn't sound like the right remedy".