Wireless industry executives mostly lauded the alliance between Nokia and Microsoft as good for competition and innovation, despite the stock market's disdain for the deal.

The partnership between the two giants -- which creates a more formidable rival to Google's mobile operating system Android -- was announced last week, and at the ongoing Mobile World Congress in Barcelona industry players have been trying to assess its impact.

While Nokia shares have tumbled more than 20 percent since announcing the deal -- touching their lowest since 1998 earlier on Tuesday -- handset and chip makers have come out in support of the alliance as a way to keep alive competing mobile software platforms and prevent the commoditization that has depressed company valuations and margins in the PC world.

Competition always helps ... Having an extra strong supplier is good for the industry, Warren East, chief executive of chip designer ARM Holdings, told Reuters.

Operating systems have emerged as the key battlefield for dominance of the world's smartphone market.

Nokia has lost ground in recent years to Apple's iPhone, which has its own operating system, as well as Google's Android software, which ended the 10-year reign of Nokia's Symbian as the pre-eminent smartphone platform last quarter.

Microsoft's Windows Phone 7 had a market share of just 2 percent in the last quarter, but with the help of Nokia, the world's largest smartphone maker by volume, that could improve significantly.

BRUSHING OFF FEARS

Initially, the announcement raised fears the phone makers using Microsoft software would abandon the platform, but those early fears appear unfounded.

Samsung said the deal would have no effect on its plans for Windows Phone 7, which it already uses in its phones.

Taiwan's HTC, the fifth-biggest maker of smartphones, uses both Android and Microsoft operating systems on its products and was upbeat about the deal.

We've been working with Microsoft for over a decade, said HTC Chief Executive Peter Chou in a speech. We're a lead partner on Windows Phone 7. We are positive, because this combination for sure will make the ecosystem stronger.

CEO of personal computer and tablet maker Acer Gianfranco Lanci also said the alliance was good for companies that make devices.

The deal could be a windfall for Qualcomm, the sole provider of chips for Windows Phone 7, as it sells little to Nokia today.

We are excited about that opportunity, Qualcomm CEO Paul Jacobs said in an interview with Reuters, adding it was too early to count chickens.

Jacobs also said the alliance was good for the mobile industry: It's good to have another strong operating system out there.

Some industry players -- like Ericsson CEO Hans Vestberg -- said it was too soon to tell how its handset joint venture with Sony would be affected by the change.

Telecom operators at the show have been more neutral on the partnership, in part because the software battle doesn't really affect their profits.

(Reporting by Tarmo Virki, Georgina Prodhan and Leila Abboud; Editing by Will Waterman)

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