Sanyo Shares Slide After Mobile Phone Battery Recall (Update7)

By Pavel Alpeyev

Dec. 8 (Bloomberg) -- Shares of Sanyo Electric Co., the world's largest maker of rechargeable batteries, fell to a 31- year low after 1.3 million of its cells used in mobile phones were recalled on concern they overheat and rupture.

The lithium-ion batteries, made by a unit of Osaka-based Sanyo, are used in Mitsubishi Electric Corp. handsets on NTT DoCoMo Inc.'s high-speed service. Matsushita Electric Industrial Co. confirmed it found six cases of burst batteries used in its Panasonic phones, responding to a Yomiuri newspaper report. Matsushita spokesman Junji Kanegawa said Sanyo wasn't the battery maker, declining to name the manufacturer.

The defects come as Sanyo President Toshimasa Iue faces a third year of losses from sliding sales of mobile phones and digital cameras. Sony Corp., which ranks second behind Sanyo in rechargeable batteries, in August started to replace 9.6 million computer notebook batteries in the biggest recall in consumer electronics history.

``This bad news is kicking the company when it's down,'' said Susumu Abe, a strategist at Mito Securities Co. in Tokyo. ``This shakes trust in the company's battery products, a major profit pillar.''

Shares of Sanyo, which was bailed out by creditors including Goldman Sachs Group Inc. this year, fell to 159 yen in Tokyo, the lowest since Sept. 12, 1975.

The perceived risk of the debt sold by Sanyo rose 12.5 percent to the highest since Nov. 21. A credit-default swap based on 10 million yen of Sanyo bonds rose to 135,000 yen a year from 120,000 yen yesterday, according to data compiled by Bloomberg.

Deformed Plates

DoCoMo, Japan's biggest wireless operator, and Mitsubishi Electric yesterday said the D06 model batteries, manufactured up until May this year, may overheat and rupture during charging if the cells had been subjected to ``strong external impact.''

The batteries contain deformed electrode plates, which can pierce the cell's internal insulation after a shock and cause an electrical short during charging, the companies said. The cells are used in D902i, D902iS and D903i handset models, they said.

``A similar problem is unlikely to occur in other handsets, because we supply the batteries in question only to Mitsubishi,'' said Masatsugu Uemura, a Sanyo spokesman. ``We are still calculating the potential costs of the recall.''

Tokyo-based Mitsubishi Electric, which also makes robots and factory equipment, only makes handsets for DoCoMo.

Sanyo GS Soft Energy Co., the manufacturer of the battery, is 51 percent owned by Sanyo and the rest by an affiliate of Kyoto-based battery-maker GS Yuasa Corp.

Declined to Name

Matsushita Electric said the six cases of cracked batteries occurred when the handsets endured high pressure or temperatures or were pierced. The Panasonic phones found with battery problems were used on DoCoMo's service.

DoCoMo also declined to name the maker of the batteries used in the Panasonic phones.

The wireless operator is ``still confirming the details with Matsushita, but there are no recalls or other measure planned at the moment,'' said Masanori Goto, a DoCoMo spokesman in Tokyo.

KDDI Corp., DoCoMo's biggest rival, today said it sells handsets with batteries made by Sanyo on a different factory line from the cells recalled yesterday.

``Our batteries are absolutely safe,'' said KDDI spokesman Satoru Ito. He said the company has had no reports of problems with batteries in cell phones it sells.

Softbank Corp., which controls Japan's third-biggest wireless company, also reported it had no problems with batteries.

Different Needs

One of the key challenges for the battery industry is that different products use the same technology for different power needs, Christina Lampe-Onnerud, chief executive of battery developer Boston-Power Inc. said in an interview last month.

``The recipes for battery cells going into cell phones is quite similar to those going into laptops,'' Lampe-Onnerud said.

Sony recalled its batteries used in laptops made by manufacturers including Dell Inc., Apple Computer Inc. and Lenovo Group Ltd., following reports that some had caught fire. Tokyo- based Sony charged 51.2 billion yen ($444 million) to replace the cells, dragging its annual profit forecast to a five-year low.

Goldman Sachs, Sumitomo Mitsui Financial Group Inc. and Daiwa Securities SMBC Co. agreed in January to bail out Sanyo with a 300 billion yen preferred stock sale. The banks control a 49.8 percent stake and five of nine board seats.

To contact the reporter on this story: Pavel Alpeyev in Tokyo at palpeyev@bloomberg.net.

Last Updated: December 8, 2006 03:37 EST

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