Nokia warns consumers of battery overheating risks

By Tarmo Virki

HELSINKI/TOKYO (Reuters) - Nokia 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 over who would bear the costs.

The news pushed shares in Matsushita down 5 percent in Tokyo -- its worst one-day fall in 14 months -- as one analyst estimated the recall could cut into the company's net profit by as much as 20 billion yen ($170 million).

Nokia, the world's top cellphone maker, said about 100 incidents of such overheating had been reported globally, but none had involved serious injuries or property damage.

"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 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 down 0.84 percent.

Some U.S. cellphone analysts said the warning would be unlikely to either hurt Nokia's market share or boost its main rivals such as Motorola Inc., Samsung Electronics Co. or LG Electronics

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 battery.

"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 and Microsoft

"By reacting swiftly and responsibly, and by being fully transparent, we believe that consumers will continue to view Nokia as a responsible and trustworthy brand," Robert Andersson, Nokia's head of customer and market operations, told Reuters.

SPLITTING THE COSTS