Someday.

Though its Symbian platform is burning down to ashes and it has lost its title as the world’s largest smartphone maker, Nokia is going to be just fine, says outgoing chairman Ollila. In fact, with the help of Microsoft’s new Windows Phone 7 operating system, the company will remain among the top three players in the smartphone market, despite its plunging market share.

“Nokia will make it into the three,” Ollila told Finnish broadcaster YLE. “It’s completely obvious and the first signs are already there. None of the operating systems have taken off quickly. It will take time, as we have seen and as was expected.”

Well, not completely obvious — particularly after the horrendous 73 percent decline in fourth-quarter earnings the company recently reported. But Ollila says such financial tumult is to be expected from a big transition like this and the earnings slip doesn’t belie its potential for success.

“When looking at the bigger picture, it shows that three operating systems will dominate in the near future and each of them will have one strong manufacturer, with Nokia having a very good chance to be one of the three,” he said.

The company’s results on Thursday showed that Nokia had better hurry.

Although it managed to ship one million of its Windows Phones last year, the company notes that its Symbian business is declining faster than it had predicted.

“Specifically, changing market conditions are putting increased pressure on Symbian,” CEO Stephen Elop noted in comments accompanying Nokia’s earnings release. “In certain markets, there has been an acceleration of the anticipated trend towards lower-priced smartphones with specifications that are different from Symbian’s traditional strengths.”

In other words, expect low-cost Android to be a strong competitor across the globe. Elop had held out hope that cheap Android phones would prove to be underpowered and less popular.

“Just because there is a version of an operating system at a price point doesn’t mean that it is a great experience,” he said in an interview last year.

But that experience appears to be plenty good enough for a bunch of the customers that Nokia had hoped would continue to buy Symbian devices.

When it announced its plans to move to Windows Phone a year ago, Nokia had said it expected nonetheless to sell a further 150 million devices.

“As a result of the changing market conditions, combined with our increased focus on Lumia, we now believe that we will sell fewer Symbian devices than we previously anticipated,” Elop said.

The company didn’t provide a new estimate, but did say that it took a charge last quarter for excess inventory and purchase commitments that it had made. It also declined to make an overall financial forecast for 2012, in part because of the uncertainty over future Symbian sales.

December StatCounter metrics, compiled by Pingdom, show Symbian with a 33.59 percent share of the global mobile OS market. That’s more than Apple’s iOS, which claimed a 22.56 percent share that same month. And it’s more than Android, as well: Google’s juggernaut mobile OS accounted for just 21.74 percent in December.

Remarkable. More so when you note that Symbian’s market share actually grew about 3 percent over the course of the year, rising from 30.25 percent at its beginning to 33.59 percent at its end.

Of course, Symbian has long been among the world’s most popular mobile operating systems. It still dominates the Mideast and most of the developing world, thanks to the affinity of those regions for Nokia’s cheap mobile phones. And evidently it will continue to do so for a while. According to these metrics, there’s certainly quite a bit of life left in it still.

It’s part of the difficult balancing act facing Microsoft in mobile. While Redmond does its most extensive work for its own Windows Phone operating system (and did so for Windows Mobile before that), the company knows it can’t afford to ignore the more dominant operating systems.

Microsoft has a number of iOS apps, including PhotoSynth and Bing, among other titles. It recently added an Xbox Live app, though its features are considerably more narrow than the Xbox Live capabilities available on Windows Phone.

Android apps from Microsoft have been less common, though it does have a handful, including Halo Waypoint and a Chinese version of Bing.

In addition to bringing OneNote to the iPad, Microsoft is also updating the iPhone version and now plans to charge users once they have more than 500 notes on their mobile device.

The real question is when will Microsoft bite the bullet and deliver a full-fledged version of Office for a rival’s mobile platform. OneNote aside, Microsoft has continued to keep Office for itself rather than do a version of iOS or Android. The company has pledged to do a version for Symbian, as part of its broader tie-up with Nokia.

Even if it is forking over a few billion dollars in marketing aid, technical help and other incentives, that’s still a fraction of what an outright purchase would have cost. For that price, Microsoft managed to get one of the biggest names in cellphones to commit to a Microsoft-centric future.

And yet, there’s a case to be made that Microsoft might still need to bite the bullet and buy Nokia.

Here are a few reasons why a full-on acquisition might be necessary.

Windows Phone is still growing very slowly
It’s getting nice reviews and customer satisfaction numbers, but Windows Phone is falling further behind Android and iOS in market share every day. Even CEO Steve Ballmer admits sales aren’t where they need to be.

The benefits of the Nokia deal depend on Nokia remaining healthy through the transition
The company has already issued one earnings warning this year and it’s not clear that sales will stay strong enough through the transition to keep Nokia the healthy partner that Microsoft needs.

Aside from Nokia, Microsoft is still getting sloppy seconds
Samsung and HTC — two of the biggest names in smartphones — are doing Windows Phones, but the vast majority of those companies’ resources are devoted toward Android devices.

Microsoft would be able to offer truly integrated phones
Perhaps that happy medium between Apple and Android isn’t so happy after all. If it isn’t going to get the diversity of devices that Google has, Microsoft could decide it needs to handle everything itself.

All that being said, there are still plenty of downsides that make a deal very much a long shot.

A deal would be expensive, even by Microsoft standards
Nokia would make Microsoft’s biggest previous acquisitions — Skype and Aquantive — seem small by comparison. Nokia is measured in the tens of billions of dollars.

Nokia has a huge low-end phone business
A good chunk of the company’s revenue comes from feature phones and other devices that are lower in cost than even the least expensive Windows Phones. (Microsoft could always sell off that part of the business)

The challenges of integration
Nokia and Microsoft are miles apart — and not just geographically. While Nokia’s CEO is an ex-Microsoftie, the two companies are still very different beings. Nokia is a hardware manufacturer at heart.

[ATM photo via Shutterstock]

To help make that case, the company has hired Richard Kerris, a veteran developer relations executive who has led efforts at Apple and, most recently, for HP’s WebOS. The company is also aiming to get Nokia devices into the hands of as many developers as possible, announcing last week that it will give out 25,000 devices in the coming months.

The biggest challenge, for both Nokia and Microsoft, is convincing developers that they need to bother developing for more than just Android and iOS.

“They are looking at two rather successful platforms in terms of the numbers and so forth,” Kerris said. “The challenge will be to show them … the opportunity.”

Nokia faces a particular challenge in North America, where it has been all but absent for many years and where the company’s Windows Phone products are still not yet available.

In an interview, Kerris and his boss, Marco Argenti, talked with AllThingsD about the challenges and opportunities facing the Finnish phone giant.

One of the ideas that the pair are kicking around are ways to offer developers help in building their business — not just their code.

“A lot of one- or two-man shops, they may know how to write an app but they may not know how to get their businesses off the ground,” Kerris said.

Kerris said it is all part of convincing developers that Nokia has something unique to offer them.

“It’s not just about great technology,” he said. “That’s one piece of it. If you don’t have all of the other pieces figured out you are not giving them the full opportunity.”

Kerris said that Nokia wants the big developers, for sure, but also has its sights set on emerging application creators.

“You want to definitely have them but the real opportunity is going to come from the next generation of developers,” he said.

While much of the outside attention is on Windows Phone, Argenti and Kerris stressed that the company also has a case to be made for developers to create new apps for Nokia’s existing platforms.

“There’s actually still quite a bit of an opportunity for developing on the non-Windows Nokia architectures,” Argenti said.

The high-end Lumia 800 will be familiar to anyone who has seen the Meego-based Nokia N9; its entry-level Lumia 710 is designed to have a “no-nonsense” look and feel. The more surprising introductions at Nokia World came on the services side, where the company announced its Nokia Drive turn-by-turn directions service, and Mix Radio, a free, global, music streaming service.

On the hardware front, both Nokia phones feature a 1.4GHz processor, but are priced quite differently and aimed at different parts of the market. The Lumia 800 is priced at 420 Euros (before any taxes or subsidies) and includes an 8 megapixel Carl Zeiss camera. The Lumia 710 is priced at 270 Euros and lacks the sleek look and high-end camera.

“Eight months ago, we shared our new strategy and today we are demonstrating clear progress of this strategy in action,” Nokia CEO Stephen Elop said in a statement.

The company made a huge bet earlier this year when it announced it would make Microsoft’s Windows Phone the centerpiece of its smartphone strategy. It has been working to develop those phones while muddling through further market-share losses as it makes the transition. Nokia has also posted losses and earnings warnings, and has laid off staff.

With these first Windows Phones, Nokia is hoping to start a new dialogue and to see its fortunes improve. In shipping its first phones, the company did reach the goal that Stephen Elop had set out in announcing the shift.

Nokia is being selective about where it launches the products, promising both phones to only five markets before the end of the year: Hong Kong, India, Russia, Singapore and Taiwan. The high-end model will also ship in six European countries next month: France, Germany, Italy, the Netherlands, Spain and the United Kingdom.

The company plans to have the products in other markets, including the U.S., early next year, with mainland China targeted for sometime in the first half of the year.

The first group of products are somewhat limited in the types of networks they support, but Nokia said it planned to introduce LTE phones as well as those that work on CDMA — the type of network used by Verizon and Sprint.

Along with the new phones and services, Nokia announced a line of headphones jointly developed with Monster, as well as a deal to work with New York’s Metropolitan Transit Authority to develop an NFC-based smartphone ticketing solution. The effort will be piloted on regional commuter trains before the end of the year, Nokia said. Finally, the company noted that its maps, in addition to being adopted by Microsoft, will also power Yahoo Maps, beginning with the U.S. and Canada.

The remaining platforms in the top five all saw declines, with Research In Motion tumbling to 19.7 percent from 24.7 percent, Microsoft slipping to 5.7 percent from 5.8 percent and Nokia’s Symbian falling to 1.8 percent from 2.1 percent.

Meanwhile, the number of Americans who owned smartphones rose 10 percent in the three-month period, though that increase seems to have benefited only Google and Apple.

It has been a bumpy ride. While the Swedish-Japanese hybrid enjoyed initial successes with its line of Walkman-branded music handsets and Cybershot camera phones, it has struggled to build major market share around the world, and, like rivals such as Motorola Mobility Holdings Inc. and Nokia Corp., has recently struggled to compete with Apple Inc. in the fast-growing smartphone market.

Sony Ericsson underwent a management shake-up two years ago, appointing Bert Nordberg, who previously headed Ericsson’s operations in Silicon Valley, as the company’s chief executive, replacing Sony’s Hediki “Dick” Komiyama. Mr. Nordberg made some radical decisions: He dropped the Symbian operating system, introduced a smartphone strategy using Google Inc.’s Android platform, and gave up Sony Ericsson’s presence in the low-end market.

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New metrics from research outfit Gartner, which measures handset sales to end users rather than handsets shipped into the channel, show Nokia selling 97.9 million mobile devices in the second quarter, for a 22.8 percent market share. That’s down from the 30.3 percent share it claimed in the year prior, but still far more than the 16.3 percent held by its nearest rival, Samsung. LG and Apple trailed far behind the pair, with 5.7 percent and 4.6 percent shares respectively.

The smartphone market, however, was another matter entirely. There, devices running Google’s Android OS hold a commanding lead with a 43.4 percent share of the market, up from 17.2 percent in the year prior. Nokia’s share is a little more than half that, with handsets running Symbian claiming 22.1 percent, down from 40.9. Meanwhile, Apple’s iOS holds an 18.2 percent share, up from 14.1 percent; and Research In Motion’s Blackberry OS has an 11.7 percent share, down from 18.7 percent.

So Nokia managed to hold some of its ground in the second quarter, despite ceding a lot of it to rivals. But it’s growing increasingly more difficult for it to do so, as that year-over-year drop — 40.9 percent to 22.1 percent — shows.

“The sales efforts of the channel, combined with Nokia’s greater concentration in retail and distributors’ sales, saw Nokia destock more than 9 million units overall and 5 million smartphones, helping it hold on to its position as the leading smartphone manufacturer by volume,” Gartner analyst Roberta Cozza said. “However, we will not see a repeat of this performance in the third quarter of 2011, as Nokia’s channel is pretty lean.”

[Image credit: visionshare/Flickr]

In an interview with AllThingsD, the head of Nokia’s U.S. subsidiary said that the company will also focus exclusively on sales through traditional wireless carriers. In the past, Nokia has sold its smartphones at full price to consumers, after finding carriers unwilling to significantly subsidize or market the products. It has also had a significant — if low margin — business selling low-cost feature phones.

However, Nokia says it needs to put all of its efforts into its Windows Phone products, which are due out later this year.

“When we launch Windows Phones we will essentially be out of the Symbian business, the S40 business, etc., ” Nokia Inc. President Chris Weber said in an interview. “It will be Windows Phone and the accessories around that. The reality is if we are not successful with Windows Phone, it doesn’t matter what we do (elsewhere).”

North America is a priority for Nokia, Weber said, in part because it is a key market for Microsoft and also because Nokia sees it as a key to winning in the smartphone battle globally.

“We’ll develop for North America and make the phones globally available and applicable,” Weber said. “In fact, evidence of that is that the first Windows Phones that will ship are being done by our group in San Diego.”

Nokia plans its biggest-ever marketing push focused on reestablishing its presence in the U.S.

“Without getting into numbers, it is significantly larger than anything we have done in the past and the most we will invest in any market worldwide,” Weber said. “They are putting their money where their mouth is.”

T-Mobile did start selling a Symbian smartphone earlier this year — the Nokia Astound — but it’s launch came after Nokia had already announced its move to Windows Phone and sales have been disappointing, Nokia Weber confirmed.

The moves are part of a series of changes that Nokia has made since Weber assumed the top U.S. post in February. Like Nokia CEO Stephen Elop, Weber came from Microsoft, where he most recently headed enterprise sales.

As part of the shift, Nokia also said it has no current plans to bring its lone Meego-based phone, the Nokia N9, to the U.S., a fact reported earlier Tuesday by Engadget.

The company is moving its sales force to Sunnyvale, and Weber told AllThingsD that the company also aims to consolidate more of its operations in Sunnyvale, shifting away work now done in other facilities in White Plains, N.Y., and Dallas. Those changes are expected to be made by early next year.

The company’s sales of 9.275 billion Euros were down 11 percent from the prior quarter and seven percent from a year ago, with the company posting a per-share loss of 10 Euro cents, compared to a per-share profit of nine Euro cents in the prior quarter and six Euro cents a year earlier.

The Finnish cellphone maker said that net sales in its core devices and services business dropped by 23 percent from the prior quarter and 20 percent from a year earlier. Smartphone revenue and unit sales saw an even steeper decline, with both down more than 30 percent from both prior quarter and year-ago results.

While acknowledging the results were “disappointing,” CEO Stephen Elop offered up a positive take on the recent actions taken by the company, including cutting prices in some areas, changing leadership on the sales side and accelerating its plans to cut costs.

“The challenges we are facing during our strategic transformation manifested in a greater than expected way in Q2,” Elop said in a statement. “However, even within the quarter, I believe our actions to mitigate the impact of these challenges have started to have a positive impact on the underlying health of our business. Most importantly, we are making better-than-expected progress toward our strategic goals.”

Looking ahead, the company didn’t provide much in terms of long-term guidance “due to limited visibility,” but said that for the current quarter it expects its core devices and services business “to be slightly above break-even, ranging either above or below this level by approximately 2 percentage points.”

The company is hoping to have its first Microsoft Windows Phone devices on sale later this year, with smartphone unit head Jo Harlow suggesting in a recent interview that more than a single model is possible.

“I’m committed to one model this year,” Harlow said. “More would be great.”

But even if Nokia can launch those phones successfully sooner than later, it will still take at least a few really rough quarters like this one to show any difference from the WP7 phones.

In other words, strap in — it’s going to be an even bumpier ride.

The market researcher said it expects Android to gain just a few points of market share and Apple’s iOS and RIM to lose share over the same period, even as Microsoft rises from 3.8 percent to 20.3 percent of the market. IDC sees the gain coming largely at the expense of the Symbian operating system, which Microsoft is supplanting on Nokia devices.

It’s not the first time that IDC has projected Windows Phone would surpass Apple in market share. Nonetheless, the IDC numbers are bullish for a Windows Phone operating system that has yet to gain much ground, with a top AT&T executive recently confirming to AllThingsD that sales have been below both Microsoft and the carrier’s forecasts.

As for iOS and BlackBerry, IDC notes that their total shipments are expected to gain each year, but the operating systems are still seen losing share as other operating systems grow faster.

Overall, IDC is predicting a 55 percent year-over-year increase in smartphone shipments this year, to 472 million, from 305 million in 2010. By 2015, IDC projects the number will nearly double again, to 982 million.

“The smartphone floodgates are open wide,” IDC analyst Kevin Restivo said in a statement. “Mobile phone users around the world are turning in their ‘talk-and-text’ devices for smartphones as these devices allow users to perform daily tasks like shopping and banking from anywhere. The growth trend is particularly pronounced in emerging markets where adoption is still in its early days. As a result, the growth in regions such as Asia/Pacific and Latin America, will be dramatic over the coming years.”

However, Nokia CEO Stephen Elop said the fact that Android is taking a bite out of Symbian in some markets today doesn’t necessarily mean that it will eat Nokia’s lunch in all segments.

“Just because there is a version of an operating system at a price point, doesn’t mean that it is a great experience,” Elop said in a brief interview after his on-stage appearance at D9 on Wednesday. Elop insisted that at the low end of the smartphone market, Symbian performs better than a bare-bones Android phone.

Nokia is counting on Symbian-based smartphones–especially at the middle and low end of the smartphone market–to tide the company over until its full lineup of Windows Phones are ready. The first model isn’t expected until the end of this year, while a broader lineup won’t be in place until 2012.

Here is an edited transcript of our chat:

AllThingsD: Does the fact that it is this hard this early in the transition–it would seem like that spells even harder months ahead?

Elop: It’s clearly difficult, but part of the difficulty–a substantial part of the difficulty–is also short-term mismanagement. I mentioned China. Clearly there were some things happening in China as it relates to the channel which hurt us badly.

Those are things we can fix. That will help. As well, we are right on the eve–actually we are just shipping our first dual-SIM products into India. We have a new set of Symbian products coming, new versions of operating systems.

We have new momentum activities still ahead.

Everything I hear tells me that Android is going to hit lower and lower price points.

Elop: We hit lower and lower price points and we have devices that range down very deep.

But if Symbian is having trouble competing against Android at the high end and now Android is at the low end, what is going to make Symbian better?

Elop: Just because there is a version of an operating system at a price point doesn’t mean that it is a great experience.

So you think Android is more competitive at the high end than at the low end?

Elop: Yes. Yes, absolutely.

Speaking at D9 Wednesday afternoon, Elop said the answer is simple: differentiation. “The biggest question for us was what degree of influence could we have over Android to ensure differentiation,” he said, adding that in the end there wasn’t enough. “Is sustainable long-term differentiation possible with Android? We felt the opportunity for that was better with Windows Phone.”

With Windows Phone, Elop said, Nokia has the flexibility to differentiate over time, something that Android OEM’s don’t have. It also has exposure, scale and, potentially, a robust ecosystem. “This is no longer a battle of devices, it is a war of ecosystems,” he said.

After it brings its first batch of Windows Phone devices to market–perhaps even later this year, Nokia plans to roll out additional devices on a regular and frequent schedule, says Jo Harlow, Nokia’s EVP of Smart Devices.

“We should be launching new devices in a rhythm that might be every couple of months, every three months, something like that,” she told PC Magazine. “We’re going to keep coming with new devices in order to have something to talk about.”

Which may prove to be a wise move. In the first quarter of 2010 Nokia’s Symbian OS was running on 44 percent of smartphones globally, according to Gartner. A year later it was running on just 27 percent.

Pushing out a series of slick Windows Phone handsets in relatively quick succession might just keep the Nokia brand top of mind for a public obsessed with the iPhone and its Android rivals. Which could do much to help the company regain that lost market share and perhaps even enable the Microsoft-Nokia alliance to create a contender smartphone ecosystem.

“… The Nokia-Microsoft partnership [has] the best chance to create a third viable [smartphone] ecosystem,” Cannacord analyst T. Michael Walkley says. “… carriers and distribution partners worldwide will support a third ecosystem if volume sales to consumers are large enough, and Nokia still has the global distribution and brand to make this happen if the new smartphones are compelling.”

But that growth was not shared equally. Apple, Samsung and HTC all at least doubled their sales, while RIM and Nokia posted only modest gains.

Nokia held on to the top spot, with nearly a quarter of the market. But its share fell from 38 percent as the company managed only 12 percent unit growth, by far the lowest of the top players. RIM’s 31 percent year-over-year growth dropped it to No. 3 in the charts behind Apple, which now controls 18.7 percent of the worldwide market, nearly five percentage points more than RIM.

Samsung came in at No. 4 with 10.8 percent market share, a huge jump from the 4.3 percent it had a year ago, while HTC also gained huge share, finishing the quarter with 8.9 percent of the market, up from just under 5 percent a year ago.

The numbers reflect the strong growth for Android and Apple’s iPhone, while the BlackBerry and Symbian devices continued to lose steam despite the huge overall growth in smartphones.

“The rise of Android as a prominent mobile operating system has allowed several suppliers to gain share quickly,” IDC analyst Kevin Restivo said in a statement. “Also, the relatively nascent state of smartphone adoption globally means there is ample room for several suppliers to comfortably co-exist, at least for the short term.”

Nokia CEO Stephen Elop says the company is taking a measured approach to developing the device, which it wants to be “uniquely Nokia,” and if that means being late to market, then so be it.

“There are now over 200 different tablets on the market and only one of them is doing really well,” he told YLE TV. “My challenge to the team is I don’t want ours to be the 201st tablet on the market that you can’t tell from all of the others. We have to take a uniquely Nokia perpesctive. So our engineers are working very hard on something that will be different relative to everything else that’s going on in the market….We could take advantage of Microsoft technology and software, and build a Windows-oriented tablet, or we could do things with some of the other software assets that we have.”

In other words, Nokia doesn’t yet have a tablet strategy.

Which is disappointing, because it really should have one. That said, Elop’s tacit acknowledgement of tablet market realities and Nokia’s embarrassment of operating system “riches” situation is refreshing. The company’s going to be late to market no matter what it does, so why rush things? Better to work hard on differentiation and execution than to rush an unfinished product to market and have it branded unfinished and unusable and have it compared to “the homeless guy who plays air guitar in front of the mall.”

The world’s largest mobile-phone maker by volume said it will consolidate its research and product-development sites so that each has a clear role and mission, and expects to expand some sites and to contract or close others.

Nokia also said it plans to outsource all Symbian software activities and move about 3,000 employees to Accenture PLC. Accenture, meanwhile, will provide mobility software services to Nokia for future smartphones.

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“Following a solid first quarter, we expect a more challenging second quarter,” Nokia CEO Stephen Elop said in a statement. “However, we are encouraged by our roadmap of mobile phones and Symbian smartphones, which we will ship through the balance of the year. We are fully focused on delivering the needed accountability, speed and results to positively drive our future financial performance.”

As for the numbers, Nokia said it saw sales for the quarter of 10.4 billion euros, up 9 percent from a year ago and down 18 percent from the fourth quarter. Its key devices and sales unit posted revenue of 7.1 billion euros, but the company sees that figure dropping in the current quarter to somewhere between 6.1 billion and 6.6 billion euros.

Nokia cited a number of reasons for the expected sales drop including overall competition and the impact of the Japan earthquake on component supply, as well as Nokia’s lack of phones that support more than one SIM card. The Japan quake effects should stretch into the third quarter, and Nokia said its devices business should be about the same in the third quarter as it is for the second quarter.

In addition to releasing results, Nokia announced earlier on Thursday that it has finalized its pact with Microsoft with regards to Windows Phone. In an exclusive interview, Microsoft mobile unit president Andy Lees and Nokia Executive VP Kai Oistamo talked about the pact as well as the technical progress, including the fact that Nokia now has prototype versions of its hardware running the next iteration of Windows Phone software.

“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.”

In the company’s earnings release, Elop echoed that sentiment.

“In the first quarter, we shifted from defining our strategy to executing our strategy,” he said.

In the meantime, however, Nokia has seen its share of the smartphone market continue to decline as the company cedes share to rivals, including Apple’s iPhone and devices running Google’s Android operating system. The company estimates its share of the global smartphone market last quarter was 26 percent, down from 31 percent in the prior quarter and 41 percent a year earlier. Nokia also sold more lower-end smartphones in the quarter, resulting in a 6 percent drop in average smartphone selling prices from the prior quarter.

The company hopes to shave 1 billion euros in expenses in the current year as it cuts operating expenses, including through layoffs. However, Nokia warned that most of its current employees–even those being cut–will be on the company’s payroll through the remainder of 2011.

The new pact, which stretches over hundreds of pages, details the financial commitments as well as delineating which company is responsible for which technical components as Nokia looks to make Windows Phone its “primary smartphone operating system.” The signed deal is being announced just as Nokia is set to report its most recent quarterly earnings and chat with investors and financial analysts.

In an exclusive joint interview late Wednesday night, Microsoft phone unit President Andy Lees and Nokia Executive Vice President Kai Oistamo talked about the contract and the technical work that has already taken place, as well as the work that remains ahead–including convincing the legions of Nokia developers not to jump ship as the company makes its huge leap from Symbian to Windows Phone.

Both executives stressed that things are ahead of schedule and that considerable progress has been made since the February announcement in London.

“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.”

To get to this point, there have been lots of flights back and forth from Finland to Redmond, as well as countless conference calls, e-mails and meetings as the collaboration has expanded from a small group of people talking about a deal to a larger team hammering out the details, and a vast effort at both companies to actually get started on the joint work needed to put all those terms and conditions into action.

The pace of progress is critical for both Microsoft and Nokia. Microsoft, of course, is still playing catch-up after essentially starting over with Windows Phone 7. The company is hard at work on a new version of the Windows Phone operating system, code-named Mango, due out later this year. That software aims to close key gaps with Android and Apple’s iOS, adding features like improved browsing and better multitasking while also giving software makers greater access to the phone’s hardware, allowing better applications for gaming and augmented reality.

Microsoft has said it is confident it can have the software on new phones and available as an upgrade for existing models this year, despite glitches with its first couple of software updates.

Nokia, meanwhile, wants to make this awkward transition time as short as it can, and also reduce the amount of time between committing to Windows Phone as its primary smartphone operating system and actually having products to sell.

Getting the contract signed was a milestone, but Oistamo said he is even more pleased with the technical work that has taken place in the past 60 days–including getting the first Nokia hardware running Microsoft’s operating system.

“A contract is just a contract,” he said during the joint interview with Lees. “The real thing is about creating something jointly together.”

Already, throughout the halls of Nokia offices worldwide, workers can be seen sporting Windows Phones alongside their existing Nokia devices. And some of them have working prototypes of Nokia hardware running early test versions of the next Windows Phone software.

Nokia has even posted some teaser concept photos on its Web site.

“The products are not done yet,” Oistamo said. “But you can already see the signs. Everything that we talked conceptually with you in London is actually coming into real fruition.”

Although the contract largely formalizes the same structure envisioned when the two companies announced the partnership in February, Oistamo said there have been some minor changes, as well as more details on how the partnership will extend beyond phones.

Microsoft, for example, plans to adopt Nokia’s mapping technology broadly beyond its phone business, while Nokia will use Microsoft’s Bing search engine on even non-Windows Phones.

As for the financials, Lees and Oistamo didn’t have much new to say, but reiterated Nokia CEO Stephen Elop’s assertion that the deal calls for billions of dollars to flow back and forth over the next few years.

Although Nokia doesn’t expect significant volumes of Windows Phone shipments until next year–and indeed will be making Symbian phones for some time to come–Elop has said that he wants the first Nokia device with Windows Phone on the market this year. And, while not offering any new details, Oistamo confirmed that those expectations haven’t changed.

“The preference and the ambition has definitely not changed, the sooner the better,” Oistamo said.

Doing so, though, means that the first Nokia smartphones running Microsoft’s software may not have as much distinctiveness as the company hopes to add over time.

“We are jumping into a moving train,” Oistamo said. “You can do more when you have a little bit more time.”

That said, even the first Nokia products running Windows Phone “are going to be very distinctly Nokia.”

Over time, Nokia hopes to bring a lot of its capabilities to both help Windows Phone as a platform and to make its Windows Phones stand out from the pack. Lees cited mapping as an area where Nokia will help the platform as a whole and imaging as an area where Nokia will try to differentiate itself from LG, Samsung, HTC and other phone makers developing Windows Phones. Even there, though, Microsoft had to do some work, noting that currently Windows Phone doesn’t give Nokia or any other hardware maker the access needed to truly stand out.

“Our platform is not fully optimized for that,” Lees said. “We need to make changes.”

Microsoft, for its part, is happy to have a partner as big as Nokia as it looks to better compete with Google and Apple in the smartphone battle. Lees noted that Nokia’s carrier billing relationships will mean that the company can sell apps even to those that don’t have a credit card, while its mapping prowess will make the phones more powerful in more countries.

“In the case of mapping, Nokia has far and away the largest global footprint,” Lees said. “Our mapping just got better everywhere around the world.”

The smartphone app allows various information–from nearby 7-11s to residential home listings to game content–to be layered on top of what is seen by a phone’s camera.

“This year we are continuing to look for more ways to bring augmented reality into people’s everyday lives,” Layar’s Raimo Van der Klein said in a statement. “With today’s new version, we’re able to take a huge step closer towards that goal by giving users the chance to discover exciting new content and share cool layers and augmented screenshots with friends.”

On the social front, users will be able to share what they see with friends via Facebook and Twitter. The new version adds what the company says is a better user interface as well as the ability for various layers to now have animated content, as opposed to just static images.

The new features are available immediately in version 5.0 for iPhone (iOS version 4.0 and higher) and for Android. Layar said the new features aren’t yet available for Symbian, though it aims to add them to that operating system soon. The update has been in beta testing since February.

However, Moody’s also expressed concern about how the company’s business will weather its transition to Windows Phone as the primary smartphone operating system. Nokia has said that at best it will have its first Windows Phone model out late this year and that it expects all of this year and next to be “transition years.”

Moody’s also lowered its ratings outlook for Nokia to negative, saying even the lowered rating assumes that Nokia can maintain a cash-flow-neutral position. However, it said it hasn’t lowered Nokia’s rating further at this point because of its large business and the overall industry growth of the smartphone industry and Nokia’s strong balance sheet, among other reasons.

Plus, the company will also be getting billions of dollars in support from Microsoft in the coming years.

Still, Nokia is counting on continued sales of Symbian-based smartphones for quite some time, though clearly it will face the challenges of waning developer and enthusiast interest in a platform that has been marked for eventual extinction.

Its forecast calls for a further 150 million Symbian-based phones to be sold in the coming years, even as the company shifts much of its development efforts to Windows Phone. Nokia just introduced a version of its Symbian-based C7 phone for T-Mobile USA and is planning to announce the latest efforts to improve on Symbian in a webcast on Tuesday.

But by 2015, those market rankings will have changed quite a bit, with an entirely new OS leapfrogging its rivals for the number two spot: Microsoft’s Windows Phone 7.

Gartner says that Microsoft’s new alliance with Nokia will drive WinPho 7 from a 10.8 percent market share in 2012 to 19.5 percent market share in 2015, roughly equivalent to the share Nokia’s Symbian OS holds today.

iOS by that time will have fallen to third place with a 17.2 percent share, and RIM’s BlackBerry OS to third with an 11.1 percent share. That’s an impressive gain for Microsoft, but a bit of a disappointment for Nokia which essentially ends up treading water. Said Gartner, “though this is an honorable performance it is considerably less than what Symbian had achieved in the past underlying the upward battle that Nokia has to face.”

Oh, for the record, Gartner was saying something entirely different just six months ago. So take this latest attempt to slap a four-year forecast on a landscape that changes as quickly as the smartphone market’s does with a grain of salt.

UPDATE: Great analysis of all this over at Asymco.

The phone maker, whose presence in the U.S. smartphone market is already small, has announced it plans to move away from its Symbian operating system in favor of Microsoft’s Windows Phone 7. The company has high hopes of boosting its presence in the U.S., but its first Windows Phone devices won’t be ready until late this year, at the earliest.

And it’s at least as awkward a time for T-Mobile USA, which was already struggling as the No. 4 carrier and now has announced plans to be sold to AT&T.

So, perhaps it is only fitting that the two parties gathered in Orlando for what has to be one of the more awkward press conferences I’ve attended in a decade and a half of covering tech.

Drawing reporters to the Crave family restaurant on the outskirts of a suburban mall, the Finnish cell phone maker announced plans with T-Mobile to start selling the Astound, a rebranded version of the company’s Symbian-based C7 smartphone.

With a small stage separating the reporters from the smattering of patrons enjoying dinner, the company showed off the device, which features decent hardware including an eight-megapixel camera, along with the same Nokia store and services that few Americans have heard of.

But what it lacks in brand power, the companies hope it can make up for with value. Indeed, the Astound’s tagline is “Smart Phone. Smart Price.”

Nokia representatives said the company is aiming to reach those moving up from feature phones by offering the product inexpensively–$79, with data plans starting as low as $10 a month (a dollar less than an order of the calamari goes for on the other side of the divider.)

For those tempted by the phone, it goes on sale early next month. For those looking to catch happy hour at the Crave, it’s Monday through Thursday from 3 p.m. to 9 p.m.