Sony says handset recall will cost $95.5M

Sony today said the recall of more than 1 million faulty handsets in Japan will cost the corporation 12 billion yen ($95.5 million) but released no details about its affect on financial results for the fiscal first quarter that ended in June.

On Wednesday, Japanese wireless carrier KDDI announced it will recall 560,000 Sony handsets because of faulty battery packs. In May, KDDI, Sony and NTT DoCoMo, Japan’s largest mobile carrier, announced a recall 546,000 phones because of software problems.

“Sony Corporation sincerely regrets the situation and the trouble we have caused our customers,” Sony said in a statement. “We will make the utmost effort to improve our product development as well as quality-control systems and strenuously work to offer customers high-quality, appealing products.”

Sony announced it would offer more guidance about the recall's effect on its bottom line when it posts first-quarter results on July 26.

Sony’s total recall cost figure of 12 billion yen does not gel with analyst predictions, however. A Merrill Lynch report issued last week estimates the NTT DoCoMo recall alone will cost the handset maker 22 billion yen ($175 million)--a combination of the costs related to the recall process and foregone revenue from additional scheduled sales of the handsets in May and June.

This week’s recall of 560,000 C406s will compound Sony’s problem further, causing the recall costs to escalate. Because the latest recall is related to problems with the battery, costs may be much less than in May’s software-related recall.

Although it isn’t necessarily a sign of impending doom, the news certainly hurts Sony’s effort to regain market share in the global handset market, said Paul Dittner, a wireless analyst with Gartner/Dataquest. It also gives Sony and Ericsson another hurdle to surmount in their 3G handset joint venture, Dittner added.

“Certainly one of Ericsson’s problems in the past has been quality,” Dittner said. “That’s essentially the same problem Sony is facing right now. … Clearly, Ericsson and Sony know they have an uphill battle. It’s going to be difficult to get their ships pointed in the right direction.”

The 3G and 2.5 space has been shrouded with technical glitches and other problems, so Ericsson and Sony are not alone in that respect, Dittner said. But both companies are still having difficulty with second-generation products, making it more difficult to convince carriers and customers of the quality of their next-generation offerings.