Nokia’s Grand U.S. Re-Entry Marred by Data Fault With Lumia

Nokia Oyj (NOK1V)’s biggest U.S. release in years started with a glitch that led the company to give customers a $100 credit on their phone bills, effectively reducing the price of its high-end Lumia 900 smartphone to zero.

The company acknowledged a flaw in the data software and announced the credit “as a gesture of goodwill” in a statement on its website published by Chris Weber, senior vice president for Nokia Americas, and Jo Harlow, smartphones chief. The problem was a “memory management issue” not related to the phone hardware or network, they said.

The Lumia release is Nokia’s biggest U.S. marketing blitz in years after the Espoo, Finland-based manufacturer closed its U.S. flagship stores and nearly disappeared from carrier shelves following the rise of Apple Inc. (AAPL)’s iPhone and Google Inc. (GOOG)’s Android. AT&T Inc. began selling the Lumia 900, Nokia’s first phone for fourth-generation networks, on April 8. The handset running Microsoft Corp. (MSFT) Windows Phone software was priced at $99.99 on a two-year contract.

“Given the significance of the relaunch for Nokia in North America, this is very bad news,” said Mats Nystroem, a Stockholm-based analyst at SEB Enskilda. “It’s not infrequent for handset makers to have problems like this, but it’s not what they need.”

Nokia cut the profit-margin forecast today for its overall handset division down 14.5 percent to 3.27 euros at the close of trading in Helsinki. The stock is down 13 percent this year.

Software Fix

Nokia will give people who bought Lumia 900 handsets through AT&T. (T) a $100 credit on their phone bills to make up for data connection problems.

“We’re working on this with some urgency and we certainly apologize for the inconvenience this has caused,” Doug Dawson, a spokesman, said in an interview. “We’ve corrected the issue in the handsets we’re shipping from factories now.”

A software fix will be available April 16 and customers will be able to update the phone themselves or swap it for a new one, Nokia said. The credit applies to handsets purchased through April 21. Dawson declined to say how many handsets were affected.

It’s not the first time Nokia handsets have interacted poorly with AT&T networks. Nokia temporarily withdrew its 5800 Symbian smartphone from two U.S. stores in March 2009 after customers reported problems with an AT&T 3G network. Six months later it temporarily halted sales of the Mural flip phone with AT&T on 3G connectivity problems.

Contactless Payments

Nokia today announced it will start shipping a version of its low-end Lumia 610 phone equipped with the NFC short-range wireless technology on France Telecom SA (FTE)’s Orange network in the third quarter. The handset will be able to make contactless payments using Mastercard Paypass and Visa Paywave readers, Nokia said in a statement.

The first-quarter operating margin for the devices and services business was probably minus 3 percent based on the non- IFRS accounting standard, Nokia said in a statement today. The company had predicted “around breakeven” with a range of 2 percentage points in either direction. Second-quarter figures will be “similar to or below” those for the first quarter, it said today.

Each Nokia Lumia 900 costs the company about $217 in parts and manufacturing expenses, according to an IHS iSuppli teardown analysis released today. Without subsidies, the retail price of the Lumia 900 at AT&T is $449.99. For comparison, the Apple iPhone 4S, which retails for $649 without a contract, costs Apple $196 in parts and manufacturing, according to IHS.

To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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