Dell’s battery recall may cost $400 mln

Analysis

Dell Inc.'s recall of 4.1 million laptop batteries made by Sony Corp. may cost the companies as much as $400 million, analysts predict. The recall, the largest-ever in the consumer-electronics industry, will increase production, shipping and marketing expenses by $200 million, Roger Kay, an analyst at Endpoint Technologies Associates, estimates. UBS AG analyst Benjamin Reitzes and Cindy Shaw at Moors & Cabot predict the total 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, Massachusetts. “It's almost like going to war.” Sony will share the costs, and Dell Chairman Michael Dell said today that 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.
Dell has identified a potential issue associated with certain batteries sold with Dell Latitude™, Inspiron™, XPS™ and Dell Precision Mobile Workstation™ notebook computers. In cooperation with the US Consumer Product Safety Commission and other regulatory agencies, Dell is voluntarily recalling certain Dell-branded batteries with cells manufactured by Sony and offering free replacements for these batteries. Under rare conditions, it is possible for these batteries to overheat, which could pose a risk of fire. The problematic computers were sold from April 2004 to July 18, 2006. Dell will ship new batteries to owners of affected computers, Dell Senior Vice President Alexander Gruzen said today in an interview. Round Rock, Texas-based 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. “There were no factories making these batteries any more,” 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.”
Sony said on Tuesday that it expected to have to share the costs of the recall with Dell. Shares in the Japanese group closed slightly lower at Y5, 210, in line with the broader Tokyo market. The withdrawal comes at a sensitive time for the company, which has been fighting broader perceptions of poor customer service and slowing sales growth. The problems of overheating and possible fire have been caused by manufacturing deficiency that led to metallic impurities being introduced into some of the batteries, Kay said. (dellbatteryprogram.com, Bloomberg, dell.com, ft.com)

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