Sanyo to shoulder with Lenovo cost of recalling 205,000 laptop batteries

Tokyo/Shanghai: Troubled Japanese electronics maker Sanyo Electric said yesterday it would shoulder with China's Lenovo Group the cost of recalling 205,000 Sanyo-made laptop batteries that could overheat.

The recall of ThinkPad batteries comes during an investigation of loss-making Sanyo by Japan's securities watchdog SESC and follows a major recall of Sony 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 big-gest maker of lithium-ion batteries, and the world's third-biggest PC maker Lenovo have not yet decided how to split the recall cost, or what the final cost might be, according to Sanyo spokesman Akihiko Oiwa.

The sum will not impact earnings, he said.

But the timing could not be worse for Sanyo, 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 per cent at 184 yen, compared with the benchmark Nikkei average, which fell 1.35 per cent. Lenovo shares declined 5.6 percent to HK$2.85, compared with the broader Hang Seng Index's 0.5 per cent 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.

If recall costs grow, it would be an additional blow to Sanyo, which 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.

Those conditions forced Sanyo to issue 300 billion yen worth of preferred shares to Goldman Sachs and two other banks at a deep discount last year.

In September, Lenovo and IBM 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 nine million recalls that also involved laptops from Dell, Apple and Toshiba.

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.