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Sony Getting Burned By Dell Flameouts

By: David Utter

Lithium-ion batteries made by Sony and used in Dell notebook computers have been blamed for the recall of 4.1 million batteries from Dell customers; this could be the start of bigger problems for Sony.

Sony Getting Burned By Dell FlameoutsOne of our favorite blogs, Good Morning Silicon Valley, pointed out a VNUnet report that could spell a Freddy Krueger-sized nightmare for Sony (SNE). Dell (DELL) quickly named Sony as the maker of the batteries blamed in several notebook overheating incidents, and the recall initiated by Dell could be the start of Sony's battery woes.

Sony batteries find their way to computer manufacturers besides Dell. It's just that Dell's problems magnify the issue, given Dell's leadership role in global PC production. In the VNUnet report, an analyst at Nomura Securities in Japan was cited at pegging Sony's potential maximum liability at $225 million.

"If Sony were to shoulder all costs related to the supply of replacements - the worst scenario for Sony - we estimate that the cost would total around 26bn [around $225m]," according to Nomura's research note to clients.

While that is one worst case scenario, there could be another. That would come into play if other PC manufacturers who are also Sony customers choose to initiate recalls while citing Dell's issues as the reason for a preemptive action.

From the Nomura note: "However, if research into the reason for the overheating reveals possible problems across the whole range of batteries, we think Sony's earnings structure could be heavily affected. We thus recommend caution until the cause of the overheating is clarified."

The multi-million dollar headache has been traced to a tiny point of failure, as Computerworld cited a Sony source on the issue:

The defect was caused by a short circuit that happens when microscopic metal particles break through the lithium ion cell wall and contact a battery anode, said Sony spokesman Rick Clancy.

"You try to eliminate that in the manufacturing process, but to eliminate them 100% is very difficult. Usually, when you have a short circuit, it might lead to a battery powering down so you'd have a dead battery, but other times, it could lead to incidents, including flaming," Clancy said.

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