PC Makers May Seek More Than Battery Recall Costs From Sony

Already facing tens of millions of dollars in costs associated with replacing recalled laptop batteries for several major PC makers, Sony now faces the prospect that some of these companies will try to recoup additional damages, such as compensation for lost business.

Toshiba said Monday it is currently studying the damage its recall of Sony’s lithium batteries had on its business, and whether the recall negatively impacted its brand image among consumers. Toshiba has recalled 830,000 notebook batteries made by Sony.

The company said it would explore a number of options based on what its study reveals, including the possibility of seeking additional compensation from Sony.

Two other Japan-based PC makers, Fujitsu, which is recalling 338,000 notebook batteries, and Hitachi, which is recalling a smaller number, say they will wait until their recalls are completed before determining any future course of action.

The three, along with Dell, Apple Computer and Lenovo Group, have recalled more than seven million laptop batteries over the past two-and-a-half months. Sony already faces the prospects of significant losses of business over time for its PC components business.

Difficult to Prove

It’s unlikely Sony would be willing to compensate its PC-making customers for any costs beyond those directly associated with implementing the recalls themselves — the costs of notifying customers and shipping replacement batteries, for instance.

That could force the PC makers to resort to legal action against Sony. Their positions could be bolstered if Sony knew about the problems with the batteries, which can overheat and, in some rare cases, catch fire due to metal shavings left behind in the batteries during manufacturing.

At least one published report out of Japan said Sony knew the batteries could overheat as long ago as late 2005, several months before the problems began to be reported to regulators who initiated the first recalls.

Neither Dell nor Apple responded to requests for comment on whether they were considering seeking additional compensation from Sony.

Meanwhile, the recall continues to expand, though by much smaller increments more recently. Last week, Sharp became the latest PC maker to join the recall, saying it would call in 28,000 Sony-made battery packs for replacement. Fujitsu expanded its own recall, adding another 51,000 Sony batteries to the 287,000 it had previously recalled.

Costs, Near Term and Long

PC makers may be hard pressed to prove direct sales or reputation losses from the recall, particularly since so many of their competitors have found themselves in the same position, making it less likely that consumers would shift purchases to rivals in response to the battery concerns.

Among major PC makers, number two vendor HP has managed to avoid the battery issues to date and has said its own testing has shown the overheating problem is not an issue with its machines.

Sony has been given high marks by analysts for quickly stepping up to say it would shoulder all direct costs associated with the recalls and to issue replacements for impacted devices.

The company said early on that the recall would cost it at least US$167 million to replace all recalled batteries, but some analysts say the overall costs, including lost business and other side effects, could cost Sony up to half of the $1 billion profit it had been forecasting for the current fiscal year.

Sony will likely feel the impact from the recall for years to come, according to Endpoint Technology Associates analyst Roger Kay, regardless of whether it comes in additional financial payouts or simply lost business.

“It will take time, but vendors are likely to start shifting their demand to other vendors … and that will put a dent in Sony’s business in this space,” Kay said. “It may not be obvious in the near term, but many of the PC vendors will move to distance themselves.”

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