Sony Suffers Most From Battery Recalls
Apple Computer Inc. on Thursday became the latest company to recall more than 1 million potentially flammable laptop batteries.
But it may prove less of a headache to Apple Chief Executive Steve Jobs than to Sony Corp. CEO Howard Stringer.
Sony manufactured the 1.8 million potentially problematic batteries that power Apple’s iBook G4 and PowerBook G4 laptops -- just as it did the 4.1 million batteries recalled last week by Dell Inc. Now, other device makers are scrutinizing the rechargeable lithium-ion batteries made by the little-known Sony Energy Devices Corp.
Concerns over unstable batteries come at a difficult time for Tokyo-based Sony and for Stringer. He was installed last year with the mandate to restore some luster to the maker of Trinitron televisions, PlayStation game consoles and such movies as “Spider-Man” and “The DaVinci Code.”
Sony’s battery brouhaha may wipe out the company’s profit for the quarter and tarnish its image as a reliable components producer. Sony shares fell $1.16 to $43.26 Thursday, as the company said the recent recalls would cost it $172 million to $258 million.
“Anything that threatens business is something that Sir Howard and other executives should be paying attention to,” said Michael Goodman, an analyst with research firm Yankee Group. “But in terms of the big picture, it does not have the same impact as if their TVs started blowing up.”
Nevertheless, annoyances like self-combusting batteries threaten to distract the Welsh-born Stringer from his ambitious restructuring. Among his top goals: Unifying the company’s fractious divisions and reconnecting with customers who abandoned Sony’s products in favor of rivals like Apple’s iPod.
During his first year in the top job, Stringer has shored up Sony’s faltering consumer electronics business, which accounts for 70% of annual sales. One of his first moves was to launch a line of flat-panel televisions that restored Sony to the top of the fast-growing liquid-crystal display market.
Although Sony is among the largest manufacturers of lithium-ion batteries, the division contributes only about 4% of the company’s $64 billion in annual revenue, Soleil Securities Group Inc. analyst Daniel Ernst said.
No recall is good news, Ernst said, but the company has taken steps to correct it, including offering free replacements.
“It’s an unfortunate thing, but we don’t think it’s an ongoing thing. Batteries are not the core driver for the company,” said Ernst, who estimated that the recall could reduce Sony’s second-quarter earnings by 20 to 25 cents a share. Analysts surveyed by Thomson Financial had been expecting per-share earnings of 23 cents.
Apple, like Dell, forecast no material impact of the recall on earnings.
Sony said microscopic metal particles could enter the battery cell during manufacturing and, on rare occasions, escape the protective lining and come in contact with other parts of the battery cell, leading to a short circuit. Usually, the battery pack will power off when a cell short circuits, said Sony Electronics Inc. spokesman Rick Clancy.
“In certain rare instances it has led to a cell overheating and then even flames,” Clancy said. “That said, the potential for this more extreme situation to occur is very rare -- a handful of incidents out of hundreds of millions [of batteries] out there.”
Apple recalled its computers after receiving nine reports of batteries overheating, including two that resulted in minor burns from handling overheated laptops.
The recall covers batteries in computers sold from October 2003 through August of this year.
Clancy said Sony had introduced safeguards to the manufacturing process from late 2005 through the early part of this year.
The recalls, Goodman said, may hurt Sony as it vies with other battery makers for laptop business.
“But in the grand scheme of things, they’re not a battery company,” Goodman said. “If Duracell had this happen, it would be a much bigger deal.”
