Microsoft is to pay Nokia more than $1bn (£618m) to support Windows Phone 7 development, as well as to promote new handsets in the US and elsewhere, according to a report by Bloomberg.
Since Nokia and Microsoft announced their smartphone partnership in February Nokia's shares have dropped 26 per cent.
"This gives Microsoft scale and allows Nokia to rip out costs," said Colin Gillis, an analyst at BGC Partners in New York.
"Microsoft is getting the sort of platform boost that would come from acquiring a Nokia for about a billion dollars," he added.
Cutting costs is a top priority for Nokia, as its operating margins shrank to 4.9 per cent last year, compared with 19 per cent a decade earlier.
As a result of the agreement, it is likely that Nokia will cut last year's €3bn (£2.6bn) research and development budget for 2011 and 2012 by about a third, according to Sami Sarkamies, a Helinski-based analyst with Nordea Bank.
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