Dell Inc.'s unprecedented recall of 4.1 million faulty laptop batteries is creating headaches for its corporate customers who have come to rely on notebook PCs as an indispensable part of doing business.
Information technology departments are faced with the prospect of testing — and potentially having to swap out — the batteries of hundreds or thousands of notebooks.
If the batteries are affected by the recall, companies — like consumers — must wait for replacements to be shipped.
"This will be a time-consuming burden on the IT department," analyst Cindy Shaw of Moors & Cabot said Wednesday.
Dell (DELL) and the Consumer Product Safety Commission announced the agency's largest-ever electronics recall Monday. It covers about 14 percent of the Latitude, Inspiron, XPS and Precision notebooks sold between April 1, 2004, and July 18 of this year.
The problem stems from battery cells supplied by Sony Corp (SNE). During production in Japan, tiny shards of metal were left in the cells, and they could cause a short-circuit.
The recall was issued after six confirmed instances of overheating or fire involving Dell systems with batteries made by Sony. No injuries have been reported, and so far no other notebook makers have been affected.
Though corporations are set up to handle large deployments of new computer parts, the process of ordering and distributing new batteries could take several weeks, said Rob Enderle, an analyst with the Enderle Group research firm.
"They clearly haven't planned to do this," he said of companies. "They have to figure out how many they need and how many they need where."
Corporations, which tend to buy computer systems in bulk quantities to save money, will have access to Dell's direct sales and support teams to help expedite the replacements, company spokeswoman Gretchen Miller said.
But it will still take roughly 20 days for new batteries to arrive. As of Wednesday afternoon, Dell had received 90,000 orders for new batteries from companies and consumers.
Electronic Data Systems Corp. (EDS), which has contracts to supply Dell laptops to the U.S. Navy and other federal agencies, said Wednesday it was still trying to get a fix on exactly how many computers were affected.
So far, EDS spokesman Travis Jacobsen said 45,000 out of 135,000 Dell laptops in the company's Navy Marine Corps Intranet contract have had faulty batteries.
Jacobsen added that the Plano, Texas-based company was leaving it up to individual employees to check if they needed replacement batteries.
Dell has not given an estimate for the recall's cost but said it won't materially affect the company's financial results, suggesting that Sony will bear the brunt of the cost.
Sales of laptops and other "mobility" products account for about a quarter of Dell's revenue.
Analysts' estimated the recall could run $200 million to $400 million.
Dell, the world's largest PC maker, was long considered a model of efficiency, with a patented direct-sales model. But there have been a string of problems recently, from the battery recall to last year's nearly $300 million charge to fix bad capacitors on the motherboards of older OptiPlex business desktop PCs.
It all adds up to an image problem that could take years to reverse, Shaw said.
"Dell used to be invincible," she said. "We believe Dell cut back too far on service and product quality, and that has come back to haunt them."
Dell, which slashed its second-quarter outlook last month, is schedule to post results after the close of markets Thursday afternoon.
The Round Rock, Texas, company anticipates earnings between 21 cents and 23 cents per share on sales of about $14 billion — below the earnings of 32 cents per share on sales of $14.2 billion the company had initially forecast and analysts polled by Thomson Financial had expected.
Dell's share price has taken a beating in recent months as the company deals with slowing growth and aggressive competition, including Hewlett-Packard Co. (HPQ) and China's Lenovo Group Ltd. Both companies get their batteries from other sources and weren't a part of Dell's recall.
Dell stock rose 65 cents, or 2.9 percent, to close at $22.73 in Wednesday trading on the Nasdaq Stock Market.