Battery Recall Could Cost Dell About $246 Million

Sony Chairman and CEO Howard Stringer was delivering his keynote address at the Consumer Electronics Show in Las Vegas, and Dell Chairman Michael Dell joined him on stage to endorse Sony's Blu-ray optical drives. After Dell good-naturedly endorsed his company's displays and notebooks over competing products of Sony's, Stringer offered a self-deprecating response.

"Well, in fairness to Sony, I should say that if you want a really expensive laptop, buy a VAIO," he said.

Sony's close and strategic partnership with Dell, however, now could prove to be really expensive to both companies. After Dell, Round Rock, Texas, announced last week that it was recalling 4.1 million notebook batteries—in which manufacturing defects could lead to overheating and fires—both companies were scrambling to put the best face on a bad story.

A Dell spokeswoman said the debacle would not lead to any "material" financial impact on the company, despite the fact that the recall is expected to cost at least $246 million. (The U.S. Consumer Product and Safety Commission pegged the cost of each suspect battery at between $60 and $180.) A Sony spokesman, whose company was accepting full blame for defects in its battery cells, declined to confirm that his company would pay any amount.

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Dell already has begun shipping the first replacement batteries to customers. However, one Dell executive, Digital Media Manager Lionel Menchaca, reported on the company's corporate Web log that lead times on shipments for most customers now would be about 20 days. In the first 15 hours after the announcement, the company fielded orders for 84,000 replacements.

Channel executives prepared for both chaos and opportunity.

Steve Seaforth, director of business development at Advanced Office Systems, a Cromwell, Conn.-based Dell reseller, said his company would be faced with helping customers sort out whether or not they needed replacement batteries.

"The alarming news is out. Now we've got to kind of identify who has the problem, who doesn't and who thinks they have the problem," he said. "It creates more chaos for us."

The faulty laptop batteries were found in Dell Inspiron, Latitude, Precision and XPS notebooks sold between April 2004 and July 2006. The dates also overlap with a separate Dell recall, announced late last year, for the replacement of 22,000 batteries due to overheating. The turmoil reached a crescendo last week after several months of bad publicity that began when a Dell notebook was caught on camera bursting into flames during a business conference in Japan earlier this year. The photo of that incident circulated virus-like throughout the Internet, leading to a spate of "me too" reports from other Dell customers who said their notebooks also caught fire.

Last month, a source close to Dell shared materials with CRN showing that Dell executives had been presented with evidence, through early last year, that scores of its notebooks had severe overheating problems—including several that appeared burned or scorched. The areas of overheating, according to photographs, weren't limited to areas containing the battery but also included scorched Ethernet ports, melted keyboards and a burned trackpad.

A Sony spokesman told CRN that company executives would not be made available to discuss the battery fiasco. However, the spokesman said that New York-based Sony currently was speaking to other vendors that use Sony's battery cells to determine whether similar problems existed for Dell rivals, too.

As of late last week, no such other vendors emerged.

"It's definitely a feather in my cap when something like this happens to Dell," said Jeff Salmeri, president of Computer Escape, a solution provider in Randolph, Mass. "That's something we can use to our benefit, especially this time of year, when notebook sales are up with kids going back to school."

Salmeri said he has seen an increase in sales of his own whitebooks to college students looking for higher-quality products. "It's nice to see what we've been telling customers all along has come to fruition," he said. "Batteries on fire and expensive notebooks are good for me."

Tim DeKorne, business manager at system builder One Second Computers and Communications, Dover, N.H., pumped his fist in exultation after someone mentioned the Dell battery recall. "We're in competition with Dell," he said. "Unless you want to join them, this is good news."

STEVEN BURKE and SCOTT CAMPBELL contributed to this report.