Microsoft produces its own operating systems (OS) for smartphones, but compared to other players it is small in the market. The Windows smartphone OS had a 3.3 percent share of the total smartphone market, compared with Google Android's 78.6 percent and Apple's 15.2 percent in 2013, according to data from IDC.
In a statement released on Friday, Microsoft boss Satya Nadella said the latest move by the company would help with its "transformation". A Microsoft spokesperson told CNBC via email that the deal with Nokia was a "milestone", but integrating the new business would "take some time to complete".
Around 80 percent of the smartphones running a Windows operating system are already manufactured by Nokia, according to data provider IHS, making the telecommunications company an ideal partner for Microsoft. Control of Nokia's handset arm could help Microsoft bolster its smartphone offering.
"Quite clearly, it lets Microsoft have full control over not just the software, but of course now the hardware direction as well," Daniel Gleeson, mobile analyst at IHS, told CNBC in a phone interview. "For Microsoft, it means they are able to bring that key partner under its wing, and really try to build something much bigger than it has been, and really try to make a big breakthrough and challenge the likes of Android and Apple's iOS system."
Stephen Elop, the former CEO of Nokia, will be heading up the devices and services division at Microsoft. Elop stepped down as Nokia boss when the acquisition by Microsoft was announced. He formerly worked at Microsoft before Nokia.
It is unclear what former Nokia products Microsoft will focus on, but ex-Microsoft CEO Steve Ballmer gave some hints last year. He told CNBC that the acquisition of Nokia would create "interesting opportunities" for PCs, as well as tablet devices.
Buying Nokia's devices unit will help Microsoft offer a more unified product, Samuel Gee, senior technology analyst at Mintel, told CNBC.
"For consumers, the most noticeable impact of the deal will be thanks to the vertical integration of handset manufacture into Microsoft's smartphone proposition," Gee said via email.
"With a production line more like Apple's – where the OS and the hardware are created to specifically complement each other – the company will be hoping to gain an edge by producing devices that avoid problems arising from the sometimes haphazard pairing of a single proprietary OS – like Android – with phones from a number of manufacturers with a huge variety of capabilities."