http://yahoo.businessweek.com/globalbiz/content/oct2006/gb20061026_545666.htm
Sony's Singed Reputation
Sony Energy may have fessed up in the battery caper, but it reflects the missteps that have dogged the company recently
by
Cliff Edwards and
Kenji Hall
For months, the news out of Sony (
SNE) read like a classic whodunit:
Dell Laptop Ignites. Apple (
AAPL) notebook computers overheat and burn users. Airlines react with fear, banning certain laptops from flights. PC makers then begin falling like dominoes, issuing recalls of millions of batteries made by Sony.
Just how damaging is the great laptop battery caper? Plenty, it turns out. On Oct. 24, Sony executives issued a formal mea culpa. Facing reporters in Japan, with chagrined expressions top executives of subsidiary Sony Energy Devices said engineers first became aware of a problem with lithium ion notebook batteries supplied to Dell (
DELL) about a year ago, suspecting tiny metallic contaminants had entered the line during production.
Executives contend they thought the issue was limited only to batteries manufactured for Dell and had been resolved soon after it was discovered. What's more, they said, they had confirmed only one overheating problem in 3.5 million batteries. "This is not about safety," Sony Senior Vice-President Naofumi Hara insists. "It's about responding to concerns. We made a managerial decision that a recall was needed." To fix the battery problem, Sony installed replacement caps on some equipment to prevent metal dust from getting into the batteries. And executives say they have toughened safety inspections.
The Proverbial Straw?
Rather than putting an end to the matter, though, Sony's explanations for the problem continue to raise troubling questions about the electronics manufacturer. More than a year after Howard Stringer became chief executive officer and was tasked with turning the company's flagging fortunes, the list of Sony corporate blunders is getting as long as the number of divisions he controls.
In the past year, Sony BMG Music Entertainment was forced to admit it embedded more than 2.1 million CDs with software that installed spyware on users' computers. Sony Computer Entertainment has had to backpedal several times on when it would release its new PlayStation 3 game console and how many units it would have available worldwide.
The consumer-electronics division also admitted that manufacturers in the rival HD-DVD next-generation player market were right after all, and that production of Blu-ray drives was not going as smoothly as Sony had let on.
Even the company's new Sony Reader digital books device, touted by Stringer as one of the hot products to watch, came to market months late. And it has suffered from lukewarm reviews because of what many call onerous content restrictions.
Big Stakes
Brand-management experts say any one of those problems could happen to anyone. But with so many issues across different divisions of the same company, Sony now faces the potential of permanent damage to its reputation. "Sony seems to have missed the point again," says Rob Enderle, principal analyst of tech consultancy the Enderle Group. "This wasn't a little quality problem, it was something that caused fires. Had an airplane come down, or someone lost their life, right now we would be discussing the end of Sony."
To be sure, Dell, Apple, Lenovo (
LNVGY), and Toshiba (
TOSBF) share some of the blame. "Product safety isn't only the battery maker's responsibility," says Yoshiharu Izumi, senior tech analyst at JP Morgan Securities Asia (
JPM). "My guess is Sony waited [to respond] because of the negotiations with PC makers over how to divide the responsibility, the cost."
Sony also likely faced internal concerns over another wave of embarrassing negative publicity. In an era where such news spreads quickly on the Web, "there's a danger in responding too quickly," says Shinichi Okamoto, former vice-president and chief technology officer for Sony's games division, who now heads a tech-consulting firm in Tokyo.
Costs and Consequences
Sony's fixes may not be enough to placate PC makers. Computer manufacturers say Sony gave them repeated reassurances that the problem was limited—and now they're furious. Toshiba has even said it is considering legal action to win compensation for lost business and damage done to its brand (see BusinessWeek.com, 10/16/06,
"Are Sony's Battery Woes Bound for Court?").
Sony is already feeling the impact. The recall will cut its quarterly earnings by about $430 million when it reports results Oct. 26, the company announced earlier this month. Sony says it will ride out the negative publicity, but the losses are likely to be just the beginning. Batteries account for about 2% of company revenues, and PC makers are already turning to other suppliers such as Sanyo (
SANYY) and Matsushita (
MC).
The HD DVD add on drive sales Directly translates into HD DVD movie viewers and buyers. The PS3 sales DO NOT!!!!!!!
