The flashy Windows Phone 7 device on which Nokia and Microsoft are pinning their hopes of a rebound in the mobile market costs about $209 in materials and just $8 in labor to produce, according to a teardown by the research firm IHS iSuppli.

That means the two companies, like Apple, have hit on a winning formula of making a low-cost device with superior features, using cheap components and great software. Nokia's Lumia 900 has been well-received by critics, especially for its 4.3-inch, 800x480 pixels Super AMOLED Plus capacitive ClearBlack touchscreen that doesn't fade in sunlight.

Three-Way Partnership

iSuppli's report notes that Nokia, Microsoft and Qualcomm, which makes the Lumia 900's chips, worked in close coordination to make sure hardware and software were optimized for each other.

"One of Apple's advantages over Android has been the company's complete control of both the hardware and operating system software, helping it to produce efficient and economical iPhone design," said Andrew Rassweiler, senior principal analyst for teardown services at IHS, in a statement about the report.

"For the Lumia 900, Nokia and Microsoft worked in close partnership with Qualcomm to develop and optimize the software stack in order to take full advantage of the hardware. But while Apple capitalizes on its low hardware costs to attain industry-leading margins, Nokia is using this approach to offer an inexpensive phone intended to compete on the basis of price."

The state-of-the-art device, launched with great fanfare last week, costs $450 if purchased unlocked, but AT&T sells it for a bargain $99. With a manufacturer's rebate, the cost could be free.

iSuppli cautions that the preliminary analysis does not factor in licensing fees for software, royalties and other costs.

Make or Break

But the report says the research firm believes Microsoft substantially discounted its licensing fees for Windows to keep the cost down because of Microsoft's past difficulty selling Windows devices made by HTC, Samsung and LG.

The stakes are high for both Nokia and Microsoft. The latest report from Nielsen Research on the U.S. smartphone market had Windows among the 8 percent of sales of devices not powered by Android, iOS or Research In Motion's BlackBerry.

And comScore's latest report on the U.S. market didn't list Nokia among the top five original equipment manufacturers. That report also estimated Microsoft's share of the market at 3.9 percent, down 1.3 percentage points from November. Both companies are depending on the Lumia 900 to reverse that trend.

"Let's give credit where credit is due," IDC Research mobile devices analyst Ramon Llamas told us. "Nokia knows how to put together a really good phone for cheap, with a gorgeous design.

"When it comes to working together with Microsoft they are saying we really need to grow this ecosystem, to make the hardware and software work. [The Lumia 900] is a testament to their relationship."

Llamas said his visits to AT&T stores indicate that the carrier is aggressively marketing the Lumia 900, and that staff have been specially trained to highlight its features.