Reaping the first fruit of their fledgling partnership, Nokia and Microsoft are seeing a small gain as the Finnish handset giant takes the lead as the world's top vendor of phones based on the Windows Phone 7 operating system.
Microsoft's global share of the smartphone market crept up to 2 percent in the fourth quarter from 1.7 percent in the previous quarter, according to Boston-based Strategy Analytics.
Nokia and Microsoft, both needing a boost in a fast-changing mobile market dominated by Apple's iOS and Google's Android , announced a deal last year believed to be worth $1 billion to jointly produce Windows phones. The partnership follows Nokia's hiring of Canada-born Stephen Elop, a former Microsoft exec, as its CEO in late 2010.
After Nokia jettisoned its Symbian platform for smartphones, which failed to gain much traction in the important U.S. market, the company went from shipping no Windows phones in the third quarter of last year to 900,000 in the fourth quarter. During the same period, the number of units shipped by all other vendors fell from 2 million to 1.8 million.
Windows phones also are made by HTC in Taiwan, Dell in the U.S., and Samsung and LG in South Korea.
Much of Nokia's growth comes from HTC, which is also losing ground to Samsung for Android shipments.
"HTC is now at risk of being caught in a pincer movement between two giants of Samsung in Android and Nokia in Microsoft, and HTC must move with urgency to address the problem," said Tom Kang, the director at Strategy Analytics.
The outlook is somewhat rosy for Microsoft since overall shipments of Windows phones grew 36 percent sequentially to reach 2.7 million units in Q4 2011. But Strategy Analytics estimates that Windows still badly trails Android at 51 percent, Apple at 24 percent and Symbian at 12 percent.
"Microsoft smartphone shipments remain tiny, but they are showing tentative signs of growth," said Strategy Analytics' Associate Director Alex Spektor.
Neil Mawston, executive director at Strategy Analytics, added "An expanded portfolio of Windows Phone 7 models such as the Lumia 800, an increased retail presence and highly visible marketing campaigns across several European and Asian countries drove Nokia's growth."
'Baby Step Forward'
The company, still the top manufacturer of mobile phones but slipping, has "a long road to recovery, but capturing the top spot in the Microsoft smartphone ecosystem is an encouraging baby-step forward for the company."
Mawston said that while HTC could ramp up production of Windows phones, "they wouldn't necessarily be able to ship them because they are constrained by the level of demand, which has shifted toward Nokia."
While Android is the most crowded sector of the market for manufacturers, he said, Windows is far less crowded. "This enabled Nokia to jump in an get off to a relatively encouraging start," Mawston said.
Strategy Analytics expects Windows' market share for the current quarter to remain about the same as last quarter, or see a slight increase, Mawston said.