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British cellphone maker


dumped an alliance with


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in favor of one with


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, highlighting growing competition in the mobile-phone software market.

Sendo said Thursday it plans to begin building handsets based on Nokia-developed software. The move was surprising, given that the small British firm has been touted by Microsoft as one of the few handset manufacturers working closely with the software giant. In exchange for Sendo's loyalty, Microsoft had purchased a minority stake in the company. Also, Sendo was just days away from shipping a handset with Microsoft software, according to analysts.

The reasons behind Sendo's hang-up on Microsoft are unclear. Sendo executives didn't return calls for comment. A Microsoft spokeswoman said, "We stand behind the quality of our phones. It's an unfortunate circumstance."

While the defection is a public embarrassment for Microsoft, analysts said it will have little impact on Microsoft's balance sheet or plans. "It doesn't change my opinion on Microsoft's goals and angles on the space," said Banc of America Securities analyst Mark McKechnie.

Industry sources said Microsoft had invested $10 million to $20 million in Sendo. Microsoft declined to comment on its investment in Sendo, but called it "minimal."

As for Nokia, Lehman Brothers wireless-equipment analyst Tim Luke said, "We consider this news to be a longer-term strategic positive for Nokia. Although the near-term impact on Nokia's financials should be minimal."

Microsoft has been trying to infiltrate the wireless phone market, hoping that cellphone manufacturers will use its software to allow subscribers to send and receive corporate e-mail and information. Last week,


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, a unit of

France Telecom

, launched the first phone based on a Microsoft's Smartphone 2002 software.


also is planning on shipping a smartphone using Microsoft software.

Microsoft has banked its strategy on striking deals with wireless carriers, since it hasn't met with much success in forming alliances with manufacturers.

AT&T Wireless


, Cingular and

Deutsche Telekom

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are expected to release phones from Microsoft.

Meanwhile, Sendo joins a crowd of handset manufacturers licensing Nokia's Series 60, including




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