Matsushita could incur costs of up to Y138 billion ($1.2 billion) to replace up to 46 million lithium ion batteries for Nokia mobile phones.

The battery recall could account for 28 per cent of Matsushita's operating profit forecast of Y482 billion (€3.1 billion) for the year ending March 2008, according to Kota Ezawa at Nikko Citigroup.

The Japanese company said it was still calculating the effect the battery replacement programme would have on its bottom line.

The batteries were found to overheat after being recharged several hundred times, Nokia said. The Finnish phone maker said about 100 incidents had been reported globally but no serious injuries or damage had occurred.

Last year Sony recalled 9.6 million notebook PC batteries, which cost the company Y51.2 billion (€330.8 million). Sanyo Electric also recalled 1.3 million batteries made by Mitsubishi Electric, incurring costs of about Y4 billion. Most analysts estimate that the cost of replacing each battery could cost Matsushita as much as Y3,000 (€19.38) per unit, bringing total costs up to a possible Y138 billion (€892 million). But some analysts think the knock-on effects will not be hugely significant.

"Even in [a scenario where costs total Y138 billion] . . . the pre-tax cash outflow per share would be a minor Y56, and the impact from damage to the brand should also be light," said Yuji Fujimori, analyst at Goldman Sachs, in a recent note.

"We are more concerned about the possibility that Matsushita is considering increasing its production capacity to supply Nokia."

The recall comes as Matsushita, better known by its Panasonic brand, has shored up its bottom line, thanks in part to robust sales of plasma televisions and other consumer electronics products. After cutting costs, Matsushita has halved its total debt during the past four years to Y603.9 billion at the end of fiscal 2006.