Stories of Dell (DELL) notebook PC batteries catching on fire and exploding are making headlines and giving Dell and Sony (NYSE:SNE), the maker of the batteries a big headache. Dell has issued a recall and Sony has offered to help Dell and cover most of the recall-related costs. These costs could total upwards of $225 million and put a sizable dent in Sony's full-year profit.
Dell is recalling 4.1 million batteries worldwide, 2.7 million of which were sold in the U.S.
The FinancialTimes.com cites a Sony spokesman saying:
"Under certain conditions there is an elevated risk that batteries may overheat or catch fire. The potential for this to occur is very rare."
Later in its article the FT reports analysts expect the financial costs to be small for both companies since 'the low number of cases is unlikely to provoke many consumers to take up the recall option.' (emphasis added)
Vnunet.com however cites a Nomura private research briefing for its investment banking clients:
"If Sony were to shoulder all costs related to the supply of replacements - the worst scenario for Sony - we estimate that the cost would total around ¥26bn [around $225m]."
Reporting by CNBC TV mentioned maximum potential costs of $300 million.
This is bad timing for both companies with back-to-school shopping winding down. Sony does make batteries for other manufacturers but the potential heat issue is said to be limited to specific models made by Dell. At least Dell and Sony are working closely and openly with the public and for Dell's sake Sony has offered to foot the costs.
Ordinary shares of Sony (Tokyo: 6758) lost 0.38% on the day to close at 5,210 yen ($45.01) and traded as low as 1.15% intra-day. Sony's ADRs closed up 1.01% yesterday at $44.81.