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Battery recall carries big price tag
Dell's recall of 4.1 million laptop batteries made by Sony may cost the companies as much as $400 million, analysts predict.
The recall, the largest ever in the consumer-electronics industry, will boost production, shipping and marketing expenses by $200 million, Roger Kay, an analyst at Endpoint Technologies Associates, estimates.
UBS analyst Benjamin Reitzes and Cindy Shaw at Moors & Cabot predict the cost may rise to $400 million.
"They need to turn their shipping operation into a massive relief operation," said Kay, who is based in Wayland, Mass. "It's almost like going to war."
Sony will share the costs, and Dell Chairman Michael Dell said Tuesday the returns are unlikely to have a material effect on earnings at the world's largest personal-computer maker.
The recall is a setback for both companies' efforts to revive demand for their products.
The Dell batteries were used in Latitude, Inspiron and Dell Precision portable PCs sold from April 2004 to July 18, 2006.
Dell will ship new batteries to owners of affected computers, Senior Vice President Alexander Gruzen said Tuesday.
Dell has increased production and is working three shifts a day to resolve the problem, Gruzen said. Meantime, owners should use power cords, he said.
Shares of Dell rose 84 cents to $22.08 Tuesday. Dell shares have declined 26 percent this year.
"There were no factories making these batteries anymore," Kay said. "They had to go back with old tooling and reproduce batteries that hadn't been made in a year, year and a half."
The recall comes as Dell tries to stem customer defections amid criticism of its customer service and growing price competition from rivals. The company, which reports second-quarter results Thursday, has said profit will fail to meet analysts' estimates for a second straight quarter.
"Dell is trying to bolster its image, and this is certainly not going to help," said Brent Bracelin, an analyst at Pacific Crest Securities in Portland. He rates the stock "sector perform" and doesn't own it.
Sony said the problem appeared to be related to the combination of the battery and charger used by Dell.
Dell recalled 4.4 million notebook PC power adapters in October 2004 because of a potential fire risk.
The U.S. Consumer Product Safety Commission, which recalled the batteries with Dell, is still investigating, said Acting Chairwoman Nancy Nord. "We're talking with Sony to try to understand better the extent of the problem."
Dell said it learned of six U.S. cases since December of notebooks overheating or bursting into flames because of a problem in the fuel cells of the widely used lithium-ion batteries.
The recall is the safety commission's largest ever for consumer electronics, said Scott Wolfson, a commission spokesman in Bethesda, Md.
No injuries were reported, Dell spokesman Jess Blackburn said.
"We're confident that they have taken the right countermeasures," Michael Dell said about Sony at the news conference. "They will continue to be our global supplier for batteries."
While Sony and PC makers said the problem was particular to Dell, the recall may spread to PC makers Hewlett-Packard and Lenovo Group, Kay said, because they also use Sony components.
Apple Computer, which uses Sony's batteries in its Macintosh notebooks, is investigating whether the recall affects current or previous models, said Lynn Fox, a spokeswoman for Apple.
The action affects 2.7 million Dell PCs sold in the U.S. and 1.4 million sold overseas, he said. The computers sold for $500 to $2,850, with the batteries selling individually for $60 to $180, Dell said.
Dell customers will be able to check the company's Web site for a listing of affected notebooks and information on how to get replacement batteries, Blackburn said. Instructions will be posted at www.dellbatteryprogram.com.
Copyright © 2006 The Seattle Times Company