Nokia finalizes Microsoft contract, sees trouble ahead with Japan quake impact

Nokia and Microsoft today consummated their courtship by signing an agreement that would commit the companies to their previously announced partnership, which would see Nokia adopting Windows Phone 7 as its primary smartphone operating system.

Additionally, Nokia reported strong first quarter earnings today, but CEO Stephen Elop warned that it will be a bumpy ride for the next few quarters as the company deals with supply chain shortages stemming from the recent Japanese earthquake.

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Not much has changed between the original announcement in February and today’s signing, the companies say. Microsoft phone unit President Andy Lees and Nokia EVP Kai Oistamo offered some insights on the progress of the partnership in a revealing conversation with All Things Digital’s Ina Fried. “We’ve gotten to where we have gotten to faster than we thought,” Lees said. “Now we know who is exactly writing each piece of code.”

Both said that the companies are ahead of schedule with the partnership, which is a good thing since the fate of Windows Phone 7 and Nokia’s future hangs in the balance. Oistamo said he was pleased with Nokia’s progress on integrating WP7 into its hardware over the past few months. He also confirmed that the company is still aiming to get its first Windows Phone device out this year, something that Elop had first mentioned in February.

A few minor changes to the original partnership announcement: Microsoft plans to use Nokia’s Ovi Map technology outside of phones, and Nokia will use Bing on phones outside of WP7 devices.

When it comes to first quarter performance, Nokia said that it saw sales of 10.4 billion euros, which is an 18 percent dip from the last quarter, but 9 percent above the same time last year. The company expects its key devices and sales unit revenue to drop this quarter to around 6.1 billion to 6.6 billion euros, down from 7.1 billion euros in the first quarter. Nokia pointed to supply chain issues resulting from the Japanese earthquake, increased competition from Apple and Google, as well as a lack of dual-SIM phones (a feature popular outside of the US) as reasons for the lower project sales.