Microsoft has agreed a deal to buy Nokia's mobile-phone business for 5.4bn euro ($7.2bn; £4.6bn).
Nokia will also license its patents and mapping services to Microsoft.
The companies said in a joint news release that the deal will be finalised in early 2014, when about 32,000 Nokia employees will transfer to Microsoft.
While Nokia has struggled with competition from Samsung and Apple, Microsoft has been criticised for being slow into the mobile market.
"It's a bold step into the future - a win-win for employees, shareholders and consumers of both companies," said Steve Ballmer, chief executive officer of Microsoft.
The transaction is subject to approval by Nokia shareholders and regulators.
'Number one priority'
Microsoft, one of the biggest names in technology sector, has struggled as consumers have shunned traditional PC and laptops in favour of smartphones and tablet PCs.
Critics say the firm has been too slow to respond to the booming market for mobile devices.
It launched its Surface tablet PCs last year but sales of the devices have been relatively slow.
Analysts said that the company wanted to make sure that it got its strategy right in the mobile phone market.
"Mobile is an area of tremendous potential but it has been one of weakness for Microsoft," Manoj Menon, managing director of consulting firm Frost & Sullivan told the BBC.
"Clearly the number one priority for the company is to get its mobile strategy right. From a strategy point of view, this deal is the prefect step, The only question is how well they can execute this plan."
'Tighter integration'
Nokia was one a leader in mobile phone category but the firm's sales fell 24% in the three months to the end of June, from a year earlier.
It sold 53.7 million mobile phones during the quarter, down 27% on last year.
However, sales of its new Lumia phones, which run a Microsoft operating system, rose during the period.
Mr Menon said that the deal between the two companies will help bring the "hardware closer to the operating system and achieve a tighter integration".
"This should help Microsoft make a more affective strategy to compete in the mobile sphere," he said.
http://www.bbc.co.uk/news/business-23940171
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