As Sony Corp. choreographs its dance steps for the awaited 3G stage, cell phones continue to inflict muscle spasms.
The Japanese electronics giant dampened market confidence in its abilities as a phone maker when one of its customers, KDDI Corp., a major Japanese carrier, announced that it would recall 560,000 Sony handsets owing to a design flaw in the battery packs.
This was the third and largest recall this year for Sony. It also is the largest by any carrier in 2001. Two other models were recalled earlier in the year, including 126,000 phones in May produced for KDDI and 420,000 in February for NTT DoCoMo, Japan’s dominant operator. While the latest recall was inspired by battery problems, the former ones hinged on software glitches. The battery problems forced the phones to overheat with higher data rates. The Japanese vendor has promised to repair the flaws, dismissing them as minor.
If the repair is minor, the recall cost is not. Sony said the recalls would cost the company more than $95 million, although analysts and Japanese media have estimated them at about $160 million, which could take deep jolts at the vendor’s consolidated operating profit for the April-June quarter.
Merrill Lynch reported that the May recalls would chop off $177 million from its operating profits in the same period. Goldman Sachs, however, has a different take. It thinks the May loss alone will amount to $91.7 million.
“The handset recalls arise from the rush to roll out 3G phones to the market,” commented Ozgur Aytar, an analyst with the Strategis Group. “The carriers are mounting pressures on the manufacturers such as Sony to bring out the phones.”
She said operators are demanding quick work on the phones, so the manufacturers are biting off more than they can chew in order to be ready for or ahead of the competition.
KDDI was not the only carrier to recall phones last week. NTT DoCoMo also recalled 100,000 Web-enabled Panasonic phones produced by Matsushita Communication Industrial Co. Ltd.
This was the second such frustration for the Panasonic P503I Hyper series phones in five months. The phones, which have become an integral part of NTT DoCoMo’s product offerings, connect to i-mode services, deploying the Java technology for games and a series of other applications. Panasonic has sold more than 800,000 units.
The software glitches have been created when the phones are taken out of their cells. NTT DoCoMo said they would fix the flaws in the phones’ microprocessors.
The series of glitches compelled NTT DoCoMo to put off the rollout of third-generation services from the end of May to October. The company has maintained that it does not expect to change the date.
While KDDI is dedicated to cdma2000 technology, whose launch of the 1x phase is scheduled for the fourth quarter of this year, NTT DoCoMo’s allegiance is to the wideband CDMA protocol.
“These are new technologies and no one knows everything about them, so there always will be problems,” said Aytar.
Sony has been aware of its failings in the handset market and that inspired the alliance with Swedish telecom equipment company L.M. Ericsson to launch the Sony Ericsson phones. But last week’s phone recalls, according to analysts, was bad timing for the Japanese vendor in light of the new alliance. Ericsson would not comment on it because the joint venture has not kicked off.
Sony has been a solid player in the electronics business, and some analysts think that the glitches and recalls are not indicators that the company will fail. Sony’s Walkman also got off to bumpy start, they say.
Ozgur, however, said the recalls could hurt the company’s image more than its revenue, because the effect will reach the consumer who may be wary of using the phones. She noted that in 1999, the Japanese phone maker broke relationships with its operators because of similar problems.
Sony entered the alliance with Ericsson to complement their strengths and shore up their shortcomings. Sony is expected to endow the phones with nifty designs as well as its expertise in electronics and multimedia appliances. Ericsson has a big market share in Europe and around the world and has established one of the best technology platforms on the face of the earth.
“It is the proper step,” noted Aytar, adding that the joint venture will make it the third-largest handset maker in the world, using Ericsson’s clout in infrastructure and chips. Some analysts think the recalls will help the joint venture master the product in the long run.
