Sanyo to share battery recall cost with Lenovo

TOKYO/ SHANGHAI Fri Mar 2, 2007 2:00pm EST

An image released by the Consumer Product Safety Commission on March 1, 2007 shows a lithium-ion extended life battery used in ThinkPad notebook computers. REUTERS/CPSC/Handout

An image released by the Consumer Product Safety Commission on March 1, 2007 shows a lithium-ion extended life battery used in ThinkPad notebook computers.

Credit: Reuters/CPSC/Handout

TOKYO/ SHANGHAI (Reuters) - Troubled Japanese electronics maker Sanyo Electric Co. 6764.T said on Friday it would shoulder with China's Lenovo Group (0992.HK) the cost of recalling 205,000 Sanyo-made laptop battery packs that can overheat.

The ThinkPad battery recall, which caused Sanyo shares to slip as much as 4.2 percent, comes during an investigation of loss-making Sanyo by Japan's securities watchdog the Securities Exchange and Surveillance Commission (SESC).

The news also invited comparison by analysts with a major recall of Sony Corp. (6758.T) batteries last year, estimated to cost Sony 51 billion yen ($433 million).

The lithium-ion extended-life battery packs, jointly designed by Lenovo and Sanyo and tested by Lenovo, can overheat and spark if dropped hard on to the ground, the two companies said.

Sanyo, the world's biggest maker of lithium-ion batteries, and the world's No. 3 PC maker Lenovo have not yet decided how to split the recall cost, or what the final cost might be, Sanyo spokesman Akihiko Oiwa said.

The sum won't impact earnings, he said.

But the timing couldn't be worse for Sanyo's credibility, said Yoshihisa Okamoto, Senior Vice President at Fuji Investment Management.

"This hits the one bright spot in Sanyo's business, just when it tries to turn itself around," Okamoto said. "I'm more worried about the SESC investigation and about Sanyo's mobile phone business, but this recall certainly does not help Sanyo's image."

Sanyo shares closed down 2.7 percent at 184 yen, compared with the benchmark Nikkei average which fell 1.35 percent. Lenovo shares declined 5.6 percent to HK$2.85, compared with the broader Hang Seng Index's .HSI 0.49 percent gain.

Lenovo said it has received five reports of accidents from overheated batteries damaging laptops, with one customer reporting minor eye irritation from the smoke and sparks.

The recall would be an additional blow to Sanyo, which earlier this week said it is considering restating its parent earnings for the four years to March 2004, following a report that it may have failed to account for more than $1 billion in losses, mainly at subsidiaries.

The company is set to post a loss for the year ending March 31 for a third straight year due to sluggish digital camera sales and heavy restructuring costs -- conditions that forced Sanyo to issue 300 billion yen worth of preferred shares to Goldman Sachs (GS.N) and two other banks at a deep discount last year.

The recall was unlikely to hurt Lenovo, one analyst said.

"Looking at the valuation, the stock is cheap," said an analyst from a major Hong Kong bank who did not wish to be named. "I don't think the recall is going to affect their business."

NOT SONY

In September, Lenovo and IBM (IBM.N) recalled more than half a million notebook computer batteries made by Sony after a computer caught fire at Los Angeles International Airport.

That recall was part of a wave of over 9 million recalls that also involved laptops from Dell Inc. DELL.O, Apple Inc. (AAPL.O) and Toshiba Corp. (6502.T).

Both Sanyo and Lenovo said this time the defect is in the design of the battery packs, which were jointly designed by the two companies and tested for impact-resistance by Lenovo, and not in the internal battery cell, designed by Sanyo alone.

"It's unlikely that Sanyo is going to have to foot the whole bill," said a Sanyo source who asked not to be named.

Sony had to foot the whole recall cost, because the overheating was caused mainly by defects in the battery cell.

(Additional reporting by Robert MacMillan in New York, Vinicy Chan in Hong Kong)

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