Shares of Sony Corp. fell as much as 3 percent to a one-month low on Friday after Apple Computer Inc. said it would recall 1.8 million PC batteries, the second major recall involving Sony-made battery cells in 10 days.
The recalls are expected to have only a limited financial impact on the Japanese electronics maker, but more importantly could dent its brand image and shake consumer confidence in its products, analysts say.
The recall comes at a precarious time for the world's second-largest consumer electronics maker which is in the early stages of an earnings recovery.
Sony's brand image has been tainted. No doubt about it, said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
Apple's recall, announced on Thursday, follows an even larger one last week by No.1 PC maker Dell Inc. of 4.1 million lithium-ion batteries, which were also produced using Sony cells, the main component of the battery pack.
Sony's shares closed down 2 percent at 5,000 yen after tumbling 3.1 percent to 4,940 yen, below the 5,000 level for the first time since late July. The benchmark Nikkei average ended down 0.14 percent.
The Tokyo-based company said the two recalls would cost it 20-30 billion yen ($172-258 million). The higher figure equals about a quarter of Sony's net profit forecast for the business year to next March.
UBS Securities analyst Fumio Osanai said the stock market reaction is believed to be temporary because Dell and Apple are likely to continue to use Sony battery packs.
Following the recall announcement last week, Dell said it would keep Sony as a supplier of notebook batteries.
I think that the stock falling below 5,000 yen signifies the market is reacting emotionally, and I don't think it will fall further, said Osanai.
I believe Sony won't have to spend more than 20 billion yen or 30 billion yen, which is not too large an amount.
The maker of Bravia liquid crystal display (LCD) TVs, Cyber-shot digital cameras, Vaio personal computers and the PlayStation game console posted an operating profit of 191.3 billion yen last business year on sales of 7.5 trillion yen.
The company said it anticipates no further recalls involving the battery cells in question, including the ones used in some Vaio PCs.
Aside from the short-term financial impact, however, investors are keeping a close eye on the long-term and indirect impact of the recalls on the electronics and entertainment conglomerate.
It is important to know if Sony's output system, shipment system or management system has something to do with the recalled products, Ichiyoshi's Akino said.
If so, there could be a chance that other Sony products are also affected. This may go deeper than what it is now.
Sony said it does not expect recalls to spread to batteries used in other electronics such as mobile phones and portable music players since they use a different type of battery cells.
Morgan Stanley analyst Masahiro Ono has said Sony's battery business has higher profitability than the average of its other operations and estimated the business generates about 10 billion yen in annual operating profit.
(Additional reporting by Nathan Layne and Aiko Hayashi)