Nokia to Conduct Ethics Review Into Misleading Ad Video

Nokia Oyj (NOK), the smartphone maker trying to revive sales with new devices unveiled last week, said an ethics officer will conduct a review into why the company published misleading marketing materials for the products.

The ethics and compliance officer is working on an independent report “to understand what happened,” Susan Sheehan, a Nokia (NOK1V) spokeswoman, said today in an interview. Nokia said last week it was sorry for not making clear that a promotional video and still photos within that clip weren’t captured with its new Lumia 920 smartphone.

The gaffe draws attention to Nokia’s marketing tactics at a time when the unprofitable company is seeking to revive its business by challenging Apple Inc. (AAPL)’s iPhone and handsets running on Google Inc. (GOOG)’s Android software. Nokia, based in Espoo, Finland, is touting its camera technology and the Lumia’s operating system from Microsoft Corp. (MSFT) as reasons for consumers to switch to its devices.

“It doesn’t look great,” said Richard Windsor, a global technology specialist at Nomura International Plc in Dubai. The “marketing mishap” may dent sentiment toward Nokia shares, yet Lumia sales will probably be unaffected, he said.

Nokia rose 0.9 percent to 2.07 euros at 11:43 a.m. Helsinki time. Before today, the stock had lost 45 percent this year.

Cameraman’s Reflection

Nokia Chief Executive Officer Stephen Elop introduced the new Lumia devices at a news conference in New York last week. The Lumia 920 has a 4.5-inch (11-cm) screen and an 8.7-megapixel camera with a so-called floating lens that uses software for image stabilization. Nokia gave no details on price, carriers or availability beyond saying the phone will go on sale in the fourth quarter.

A video advertisement showing off the device’s camera technology was questioned by The Verge blog hours after the phone was demonstrated. The video shows a woman riding a bicycle down a road and as she passes a parked trailer, the reflection in a window reveals a large white van with lighting equipment and a cameraman hanging out of the door filming.

While the video gave the impression that it was shot using the Lumia 920, Nokia never claimed that was the case. The company, in a blog posting apologizing for the confusion, said its aim was to demonstrate what can be achieved using the image- stabilization technology.

‘Poor Judgment’

“What we understand to date is that it was nobody’s intention to mislead, but there was poor judgment in the decision not to use a disclaimer,” Sheehan said, declining to name the company that produced the video. Nokia is dealing with the situation “quickly, fairly and privately,” she said.

Nokia, whose U.S. market share peaked at 32 percent in 2001, accounted for about 2 percent of smartphone purchases in the second quarter, according to Strategy Analytics. The iPhone and devices using Google’s Android software combined accounted for about 90 percent.

Nokia’s credit rating was cut to junk this year by the three biggest rating companies, and the phonemaker has announced more than 20,000 job cuts and closed production and research sites in an attempt to return to profit.

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