Dell to recall notebook batteries
Tue Aug 15, 2006 5:56 AM EDT
By Philipp Gollner and Kiyoshi Takenaka
SAN FRANCISCO/TOKYO (Reuters) - Dell Inc. <DELL.O> said on Monday it will recall 4.1 million notebook computer batteries because they could overheat and catch fire, in the biggest recall in its 22-year history.
The world's largest personal computer maker blamed the voluntary recall on lithium-ion batteries made by Sony Corp. <6758.T>, which Dell said could in rare cases produce smoke and catch fire.
Dell, which expected no financial impact from the recall, said it would keep Sony as a supplier of notebook batteries.
"We have confidence that they have taken the right countermeasures and the process is now secure. We expect that Sony will continue to be a good supplier of batteries for us," Chairman Michael Dell told reporters in Singapore.
The batteries are also used by other computer makers, including Apple Computer Inc. <AAPL.O>, which said it was looking into the issue. Hewlett-Packard Co. <HPQ.N> said its notebooks were not affected by the Dell recall, which was issued with the U.S. Consumer Product Safety Commission.
No injuries have been tied to the defect involving the Dell-branded batteries, Dell said. The company has received six reports of batteries overheating, causing damage to furniture and personal belongings, the safety commission said.
Dell spokesman Jess Blackburn said a battery of the type involved the recall was in a Dell laptop that erupted in flames in Osaka, Japan, recently. The incident was captured in photographs sent across the Internet.
About 2.7 million of the recalled notebooks are in the United States, Blackburn said.
Rick Clancy, a spokesman for Sony Electronics Inc. in the United States, said the financial impact of the recall on Sony "is still not fully determined" and partly depends on how many people participate in the recall.
Shares of Dell were down 27 cents or 1.3 percent at $20.97 in extended trading and HP shares rose less than 1 percent to $33.46. Sony closed down 0.38 percent at 5,210 yen on Tuesday in Tokyo, slightly underperforming the overall market.
Masahiro Ono, a Tokyo-based analyst for Morgan Stanley, said Sony would have to at least bear part of the recall cost, but he expected the cost would be limited because only six cases had been reported and the recall rate would likely be fairly low.
"Dell is an important customer for Sony's battery business for personal computers, so there would be some sort of impact on the operations," Ono said. "But realistically speaking, it would be hard for Dell to find another supplier that can provide a large volume of batteries as stably as Sony."
He said Sony's battery business has higher profitability than the average of its other operations but estimated the business generates only about 10 billion yen ($86 million) in annual operating profit, or 5 percent of group operating profit last business year of 191.3 billion yen ($1.64 billion).
CORPORATE IMAGE AT STAKE
The recall comes as Dell tries to refresh its image with a marketing campaign to demonstrate improvements in customer service after the company was hit with complaints of inferior after-sales service. Dell is investing about $100 million this year and hiring 2,000 people in the improvement efforts.
The company also has taken a beating on Wall Street, with its shares falling 47 percent over the past 12 months while rival Hewlett-Packard surged 37 percent. Dell's growth has slowed amid tougher competition.
Dell's image now hinges on how the company manages the recall, said Roger Kay, president of market researcher Endpoint Technologies Associates.
"It could cut either way, depending on how they handle it," Kay said. "The circumstance of failure is an opportunity to touch customers. If they touch them well and kindly, then customers will touch them well, too."
The recall of batteries in machines sold from April 2004 to last month spans Dell's notebook lines, including the Latitude, Inspiron and Precision models, Blackburn said. They ranged in price from $500 to $2,850, Dell said.
Sony and Dell cooperated in investigating and presenting the matter to the consumer safety commission. Neither party has resorted to litigation, Clancy said.
Sony has addressed the safety problem in its lithium-ion battery cells, Clancy said. "Further modifications have been made that provide a greater level of security."
A Sony spokesman in Tokyo said the overheating problem is believed to be specific to batteries supplied to Dell, but recall decisions are up to each PC maker.
Although the battery cells involved -- a key component of battery packs -- are used in packs supplied to other PC makers, the combination of the cells in question and the recharge system embedded in the packs provided to Dell is likely to have caused the problem, he said.
He declined to identify other PC makers that have bought the batteries in question.
The recall involves 18 percent of Dell's 22 million notebook computers sold between April 2004 and July 2006. It also comes three days before Dell is scheduled to report its fiscal second-quarter earnings.
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