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Sony shares hit 3-year low after Vaio laptop recall
September 5, 2008 / 12:26 AM / 9 years ago

Sony shares hit 3-year low after Vaio laptop recall

TOKYO (Reuters) - Shares of Sony Corp (6758.T) fell more than 4 percent to their lowest in almost three years on Friday after the consumer electronics giant recalled 438,000 Vaio laptops due to possible overheating that could burn users.

<p>A man looks at Sony Vaio laptops at a showroom in Singapore September 5, 2008. Sony shares fell more than 4 percent to hit the lowest in almost three years on Friday after the electronics maker announced a recall of 438,000 Vaio portable computers due to possible overheating that could burn users. REUTERS/Vivek Prakash</p>

Sony has been dogged in recent years by recalls of notebook computer batteries due to concerns they could overheat and catch fire. Dell Inc DELL.O, Apple Inc (AAPL.O) and other top PC makers recalled 9.6 million Sony batteries in 2006, costing the Japanese firm 51 billion yen ($481.5 million).

The company said the latest recall would have limited impact on its earnings. But some voiced concerns about Sony’s reputation because the recall hit one of its main businesses and the company was slow to report the defect.

“It is not appropriate, considering how big the issue is,” trade minister Toshihiro Nikai told reporters, when asked about Sony’s handling of the case that it took one year to report after first learning about the defect.

Sony spokesman Shinichi Tobe said the company sees little impact on its earnings from the recall -- one of the biggest in computers since 2006. He declined to say how much Sony expected the recall to cost.

Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management, said a firmer yen and a decline in U.S. shares likely triggered the share price drop on Friday, but the recall could damage the Sony brand if the company finds further such defects.

“If these things pile up and reveal that Sony’s structurally weak, then its brand value will definitely be hurt,” he said.

Sony said the problem in the Vaio laptops, produced between May 2007 and July 2008, is related to irregularly positioned wires near the computer’s hinge that can cause a short circuit and overheating.

Sony’s Tobe said the company received the first report about the Vaio wiring trouble in August 2007 and had replaced parts individually for those computers that were affected.

It reported the problem to the Japanese authorities last month when there were more than 200 cases worldwide and moved to a voluntary recall, announced on Thursday.

The company considers the PC business as one of its seven pillars and aims to expand it to a 1-trillion-yen ($9.4 billion) business by the year ending in March 2011.

For graphics of the proportion of Sony's sales by business segment and PC sales, click on: here

One Tokyo-based analyst, who declined to be named, said the latest recall could even hurt Sony’s battery business in addition to its PC operations.

”As far as reliability and the delay in taking action, this case links to its past lithium battery recall,“ the analyst said. ”One would wonder if Sony would be OK when both of the businesses are expanding.

“This will likely cast a shadow over Sony’s earnings targets in the medium to long run.”

Sony shares shed 4.2 percent to close at 3,880 yen after touching 3,850 yen, the lowest since November 2005. The Nikkei average .N225 ended down 2.8 percent.

($1=105.90 Yen)

Reporting by Sachi Izumi; Editing by Chris Gallagher

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