No Quick “Cool Down” in Sight for Sony’s Li-Ion Battery Difficulties

October 05, 2006 by Jeff Shepard

In the wake of recalls of more than 7 million Sony Corp. rechargeable Li-ion batteries (thus far) in the last two months, the company is struggling to keep its financial head above water. With the estimated total cost of the recalls ranging between $200 million (Sony's tentative early estimate) and $420 million (a Mitsubishi UFJ Securities "possible" projection), the company's shares dipped 2.7% to their lowest point in 10 months. Goldman Sachs has slashed its rating of Sony's shares, cutting in half its earlier full-year operating profit estimate for the company to $848 million. (Sony's own forecast was 30% higher). Analysts are also warning that the financial health of the entire lithium battery and PC industry could worsen depending on how the issue is addressed.

Complicating matters for Sony, a slew of negative publicity has mounted throughout the week, which many analysts warn may lead to a reduction of consumer confidence in the Li-ion technology itself, rather than simply the company. A spokesperson for the U.S. Consumer Product Safety Commission was quoted in Consumer Reports as stating that the recalls could "expand beyond notebook computers and could include DVD players and portable gaming devices." Then the Japanese newspaper Yomiuri Shimbun reported that Sony was aware of the "overheating" battery problem as far back as December 2005, but failed to adequately study or address the problem, dismissing it as a problem only in relation to batteries manufactured for Dell (the initial company that experienced the overheating problem).

If these developments weren't serious enough, some Japanese battery manufacturers scored Sony for damaging the reputation of the nation's output (which currently comprises 70% of the global market for Li-ion batteries). The Battery Association of Japan (BAJ) took Sony to task for failing to provide sufficient information to allow the industry to determine if the problem was specific to Sony or whether it had broader implications. The Ministry of Economy, Trade, and Industry (METI) for Japan joined in the criticisms, stating that it had not received a satisfactory explanation from Sony as to why the problem had developed and how it was being addressed.

With potential tighter transportation restrictions on all Li-ion batteries looming in the near future (in lieu of several large airlines either banning battery-powered laptop usage or weighing the possibility), both the Japanese government and the nation's battery industry are rallying to address the issue. The government is in the process of creating test standards which manufacturers will be expected to follow. After the initial reports of laptop fires, METI sought detailed reports from the affected American companies for information related to the recalls, and it petitioned the BAJ to investigate the incidents. METI then formed a working group to develop safety measures for Li-ion batteries. The group held its first meetings on September 22, and is planning on releasing its initial recommendations by March. METI (which has determined that a major problem is that each manufacturer sets its own safety criteria) is hoping to establish a uniform testing procedure that all Li-ion batteries to be used in the laptop market will have to clear.

Despite the cloud of suspicion that is gathering around Sony and the Li-ion battery market, a more positive development came out of the United States. Hewlett Packard (HP) released a statement emphasizing that it had (in collaboration with Sony) studied its PC system configuration and related safety standards, and determined that the company would not be joining in the wider industry recalls of Sony batteries included in HP notebooks. HP is confident that it has implemented a number of "extra" safety tests that go beyond the industry norm, and that it has no reason to be concerned about any overheating problems related to Sony batteries. The HP model may well end up being the basis for the solution to the flaming battery concerns that are currently threatening the Li-ion battery industry.