Nokia warns consumers of battery overheating risks

By Tarmo Virki

HELSINKI (Reuters) - Nokia (NOK1V.HE) warned consumers that 46 million batteries used in its mobile phones could overheat and offered to replace them for free while it negotiates with battery maker Matsushita (6752.T) over who would bear the costs.

The world's top cell phone maker said about 100 such incidents had been reported globally, but no serious injuries or property damage had been reported.

"Nokia has identified that in very rare cases the Nokia-branded BL-5C batteries ... could potentially experience overheating initiated by a short circuit while charging, causing the battery to dislodge," it said on Tuesday.

Nokia said it was working closely with Matsushita Electric Industrial Co. Ltd., which made the batteries in question between December 2005 and November 2006, to investigate the problem.

Replacing the batteries would have some financial impact, but Matsushita would pay part of the costs, Nokia said.

Analyst Richard Windsor of Nomura estimated the cost to Nokia at a maximum of 100 million euros ($137 million).

"Historically, when there's been a problem of this nature the supplier has had to pay," he said. Research firm Gartner said one such battery would cost around $4.

Nokia's U.S. shares (NOK.N) closed down 64 cents or 2 percent at $29.84 on the New York Stock Exchange. Its European shares had closed down 1.55 percent, helping nudge the DJ European technology index .SX8P down 0.84 percent.

Some U.S. cell phone analysts said the warning would be unlikely to either hurt Nokia's market share or boost its main rivals such as Motorola Inc. (MOT.N), Samsung Electronics Co. (005930.KS) or LG Electronics (066570.KS).

But Jyske Bank downgraded its rating on Nokia shares to "reduce" from "buy," saying every third Nokia user would now have to check their phone's batteries.

"I think this will hurt Nokia's brand a lot and that's the most precious asset Nokia has," Jyske analyst Soren Linde Nielsen said.

According to Interbrand, Nokia's brand is valued at $33.7 billion, making it the world's fifth most valued brand after the likes of Coca-Cola (KO.N) and Microsoft (MSFT.O).

SPLITTING THE COSTS

Mobile phone maker Sony Ericsson, owned by Sony Corp. (6758.T) and Ericsson (ERICb.ST), said it depends mostly on batteries from Sony and does not use Matsushita batteries.

Last year, Sony was hit by hefty costs over the recall of 9.6 million laptop PC batteries that could overheat and catch fire.