Sony will lose at least US$560 million from its predicted earnings this year as it pays for huge battery recalls and a price cut for its PlayStation 3 games console, analysts believe.
The company has also been hit by allegations that it knew its notebook PC batteries could catch fire a year ago, but failed to understand the magnitude of the problem.
The mounting cost of problems with notebook batteries and the PlayStation 3 will cut Sony's expected US$1.1 billion profits in half this year.
This figure could rise further, according to industry analysts, particularly if PC vendors or consumers take legal action against Sony. Five major notebook vendors have so far announced battery recalls.
"These issues raise questions about the positioning of rechargeable battery operations, which have no part in Sony's vertically integrated model, and of the Cell processor, which is supposed to be a core part of the structure," said Nomura Securities analyst Eiichi Katayama.
A global recall of some 10 million lithium ion notebook PC batteries is likely to cost Sony almost US$340 million, even assuming that the company avoids expensive legal action related to the issue, Nomura estimates.
In addition, a decision to slash the price of the PlayStation 3 in Sony's strong home market will cost a total of US$220 million, the analyst predicts.
In a further shock to Sony, a Japanese newspaper has alleged that the company knew almost a year ago that its batteries could catch fire, but failed to appreciate the seriousness of the problem.
Sony first became aware of the battery problem in December 2005, when a Dell notebook caught fire in Japan, the Daily Yomiuri reported, citing unnamed Dell and Sony representatives.
As a result of this incident, 35,000 Sony batteries installed in Dell laptops were quickly recalled and replaced. Sony was not named as the battery manufacturer at that time.
However, the Daily Yomiuri alleged yesterday that Sony "only examined the same type of batteries produced around the same time. Sony did not examine batteries it had produced for companies other than Dell on the ground that no accidents had been reported in other computers."
Sony's battery problems did not explode into public view until almost seven months later, when dramatic pictures of a Dell laptop bursting into flames at a seminar in Osaka were published in vnunet.com's sister publication The Inquirer.
According to the Daily Yomiuri, an unnamed Sony spokesman alleged that the battery fires were actually sparked by the effect of Dell's hardware on the faulty batteries.
The report did not mention whether this allegation also applied to any of several other notebook makers which have also recalled Sony batteries.
Dell chief executive Michael Dell appeared to pin the blame firmly on Sony in an interview earlier this month.
Before Sony's recent bad news broke, Nomura had predicted that the firm would earn US$1.56 billion in operating profits this financial year, while Sony itself had issued a forecast of US$1.1 billion.
Sony to lose US$560m on PS3 and burning batteries
By Simon Burns on Oct 6, 2006 10:11AM