Global Insight Perspective | |
Significance | The battery recall phenomenon that has bedevilled the computing industry has now hit the mobile handset sector. |
Implications | Nokia will inevitably suffer as its carefully packaged brand will be dented by the saga. However, the financial burden will be minimal as Matsushita is expected to take the brunt of the burden. |
Outlook | Given the sheer randomness in the occurrence of such problems, Nokia's rivals are hardly going to create a fuss about the incident, leaving Nokia's march towards a 40% mobile handset market share intact. |
Mobile handset giant Nokia has issued a warning about a batch of 46 million mobile handset batteries after receiving reports of around 100 incidents. Nokia said the handsets, manufactured by Japanese giant Matsushita Electric Industrial Co under the Panasonic brand, had overheated and caused short-circuiting on certain phones. In a statement, Nokia promised to replace a number of customers' phone batteries, emphasising that the warning applies only to those BL-5C batteries manufactured by Matsushita between December 2005 and November 2006. "There's only been one hundred incidents out of 46 million batteries that were produced and there's no material injury or damage to property," said Rick Simonson, Nokia's chief financial officer.
Commenting on the financial implications of the battery recall, Simonson told Dow Jones that that there will be some direct costs resulting from replacing batteries, but that it was too early to add up what that cost will be. "In supplier relationships they [the supplier] bare the responsibility to deliver quality. There will be some costs and some of that will be borne by the manufacturer," he said. A Matsushita spokesman admitted the battery defects were due to abnormalities in the manufacturing process—rather than design issues—adding that Matsushita will work with Nokia to determine how to bear the costs of the battery recall. The BL-5C battery, which Nokia uses in over 30 different mobile handset models, is manufactured by several suppliers and about 300 million were produced in total.
Outlook and Implications
Battery Chaos Moves from Laptop to Mobile: The emergence of problems with mobile handset batteries brings home to the mobile industry the crises that have rocked the computing world recently. Computer makers Apple, Dell and Lenovo recalled 9.6 million different personal computer batteries in October 2006, and in July 2007, Toshiba recalled 10,000 batteries. Incidentally, the above recalls were all for batteries manufactured by Sony Corp, making the latest Matsushita-manufactured battery recall unique. However, while the risk to health remains, there are scale differences in the quantity of charge stored in laptop and mobile phone batteries, with the former holding much more energy, thus being prone to significantly greater cataclysmic effects when they malfunction.
Slowing Nokia's Runaway Dominance: Although the financial burden for the recall will be mostly borne by Matsushita, the unquantifiable damage to Nokia's carefully packaged brand could prove massive. That depends, though, on how swiftly rivals move in to capitalise on Nokia's problems. The Finnish handset maker now controls 38% of the mobile handset market, and has not hidden its intention to reach the 40% mark. Its ascent to dominance has largely been at the expense of U.S. manufacturer Motorola, which has been displaced by Samsung as the second-largest handset maker. But rivals are limited in what they can do in this circumstance. Battery defaults are determined by supplier abnormalities and the sheer randomness in their occurrence means it could be another handset maker worrying about it tomorrow. Given this uncertainty, and a presumed ethical approach to competition, Nokia's rivals are hardly going to make a fuss about it. Global Insight believes that—bar a momentary dip in financial standing—Nokia's onward march to a 40% market share remains on course (see World: 3 August 2007: Nokia Edges Closer to 40% in Q2 Handset Market Share as Key Rival Falters).