Dell to recall notebook batteries

By Philipp Gollner and Kiyoshi Takenaka

SAN FRANCISCO/TOKYO (Reuters) – Dell Inc. said on Monday it
will recall 4.1 million notebook computer batteries because
they could overheat and catch fire, in the biggest recall in
its 22-year history.

The world’s largest personal computer maker blamed the
voluntary recall on lithium-ion batteries made by Sony Corp.,
which Dell said could in rare cases produce smoke and catch
fire.

Dell, which expected no financial impact from the recall,
said it would keep Sony as a supplier of notebook batteries.

“We have confidence that they have taken the right
countermeasures and the process is now secure. We expect that
Sony will continue to be a good supplier of batteries for us,”
Chairman Michael Dell told reporters in Singapore.

The batteries are also used by other computer makers,
including Apple Computer Inc., which said it was looking into
the issue. Hewlett-Packard Co. said its notebooks were not
affected by the Dell recall, which was issued with the U.S.
Consumer Product Safety Commission.

No injuries have been tied to the defect involving the
Dell-branded batteries, Dell said. The company has received six
reports of batteries overheating, causing damage to furniture
and personal belongings, the safety commission said.

Dell spokesman Jess Blackburn said a battery of the type
involved the recall was in a Dell laptop that erupted in flames
in Osaka, Japan, recently. The incident was captured in
photographs sent across the Internet.

About 2.7 million of the recalled notebooks are in the
United States, Blackburn said.

Rick Clancy, a spokesman for Sony Electronics Inc. in the
United States, said the financial impact of the recall on Sony
“is still not fully determined” and partly depends on how many
people participate in the recall.

Shares of Dell were down 27 cents or 1.3 percent at $20.97
in extended trading and HP shares rose less than 1 percent to
$33.46. Sony closed down 0.38 percent at 5,210 yen on Tuesday
in Tokyo, slightly underperforming the overall market.

Masahiro Ono, a Tokyo-based analyst for Morgan Stanley,
said Sony would have to at least bear part of the recall cost,
but he expected the cost would be limited because only six
cases had been reported and the recall rate would likely be
fairly low.

“Dell is an important customer for Sony’s battery business
for personal computers, so there would be some sort of impact
on the operations,” Ono said. “But realistically speaking, it
would be hard for Dell to find another supplier that can
provide a large volume of batteries as stably as Sony.”

He said Sony’s battery business has higher profitability
than the average of its other operations but estimated the
business generates only about 10 billion yen ($86 million) in
annual operating profit, or 5 percent of group operating profit
last business year of 191.3 billion yen ($1.64 billion).

CORPORATE IMAGE AT STAKE

The recall comes as Dell tries to refresh its image with a
marketing campaign to demonstrate improvements in customer
service after the company was hit with complaints of inferior
after-sales service. Dell is investing about $100 million this
year and hiring 2,000 people in the improvement efforts.

The company also has taken a beating on Wall Street, with
its shares falling 47 percent over the past 12 months while
rival Hewlett-Packard surged 37 percent. Dell’s growth has
slowed amid tougher competition.

Dell’s image now hinges on how the company manages the
recall, said Roger Kay, president of market researcher Endpoint
Technologies Associates.

“It could cut either way, depending on how they handle it,”
Kay said. “The circumstance of failure is an opportunity to
touch customers. If they touch them well and kindly, then
customers will touch them well, too.”

The recall of batteries in machines sold from April 2004 to
last month spans Dell’s notebook lines, including the Latitude,
Inspiron and Precision models, Blackburn said. They ranged in
price from $500 to $2,850, Dell said.

Sony and Dell cooperated in investigating and presenting
the matter to the consumer safety commission. Neither party has
resorted to litigation, Clancy said.

Sony has addressed the safety problem in its lithium-ion
battery cells, Clancy said. “Further modifications have been
made that provide a greater level of security.”

A Sony spokesman in Tokyo said the overheating problem is
believed to be specific to batteries supplied to Dell, but
recall decisions are up to each PC maker.

Although the battery cells involved — a key component of
battery packs — are used in packs supplied to other PC makers,
the combination of the cells in question and the recharge
system embedded in the packs provided to Dell is likely to have
caused the problem, he said.

He declined to identify other PC makers that have bought
the batteries in question.

The recall involves 18 percent of Dell’s 22 million
notebook computers sold between April 2004 and July 2006. It
also comes three days before Dell is scheduled to report its
fiscal second-quarter earnings.

(Additional reporting by Jennifer Tan in Singapore and
Sachi Izumi in Tokyo)