Nokia said it has now signed a definitive partnership agreement with Microsoft which “will result in a new global mobile ecosystem,” as the Finnish company also reported “solid” first quarter results. However, Stephen Elop (pictured), its CEO, noted that moving forward, “we expect a more challenging second quarter.” According to a statement, Nokia and Microsoft have made “significant progress on the development of the first Nokia products incorporating Windows Phone,” with “hundreds of personnel already engaged on joint engineering efforts.”

For the first quarter of 2011, Nokia reported a net profit of EUR231 million, up 32 percent over the prior year. Its operating profit was EUR439 million, down 10 percent. Net sales were EUR10.4 billion, up 9 percent. Its operating margin was 4.2 percent, compared with 5.1 percent in the first quarter of 2010.

While the numbers were largely robust, there were some clear downsides. The company said it believes its device market share has slipped to an estimated 29 percent from 33 percent in the prior year, with its converged mobile device (smartphone) share falling to 26 percent from 41 percent. It has managed to achieve shipment growth, but has been outpaced by the market in general: during the quarter it shipped 108.5 million handsets, up 1 percent year-on-year, with shipments of converged mobile devices at 24.2 million, up 13 percent.

Nokia highlighted a number of factors which will impact its performance in the second quarter, including “competitive industry dynamics and our planned tactical pricing actions,” a greater impact from the Japanese disaster related to component supply; a lower contribution from new products, due to the fact that most new products will begin shipping in the second half of the year; and a greater impact from the lack of dual-SIM devices in its portfolio than it has previously seen.

Sales in Nokia’s main Devices & Services unit were EUR7.1 billion, up 6 percent year-on-year, although its operating profit in this division fell to EUR690 million, down 17 percent. The company is planning to reduce operating expenses in this business by EUR1 billion for the full year 2013, compared to its 2010 levels. This is expected to include job cuts, a reduction in facility costs, and various improvements in efficiency. It said that “generally all currently employees can stay on the payroll through the end of year 2011, even those possibly impacted by the reductions.”

Away from its devices unit, Nokia Siemens Networks reported an operating loss of EUR142 million, compared with a loss of EUR226 million in the previous year, on sales of EUR3.17 billion, up 17 percent. Sales growth came from both product and services activities in most regions. Its NAVTEQ navigation unit saw an operating loss of EUR62 million, compared with EUR77 million, on sales of EUR232 million, up 23 percent. The increase in sales was attributed to improve licence sales to mobile device customers as well as improved vehicle sales and higher navigation uptake rates in the automotive industry.