Dell battery recall has upside

After making the largest recall in computer history, could Dell actually come out of this ordeal looking better than ever?

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The day after Dell Inc. recalled 4.1 million laptop batteries because of the risk of fire, CIO Larry Thomas was assigning three or four staff people to tackle the job of retrieving batteries. "It's an inconvenience," said Thomas, who oversees IT strategy at Landstar System Inc., a $2.5 billion carrier and logistics company in Jacksonville, Fla.

We'll see if they are going to be right there with us in the process. That will definitely minimize the negative impact.
Larry Thomas
CIOLandstar System Inc.
Landstar decided last year to go exclusively with Dell laptops. About 75 employees use Dell systems, about 20 of them are truck drivers in the field. Thomas expected his mini task force to spend the bulk of the day coming up with a "communications strategy." For the in-house users it was simple enough. But for the fleet of drivers the question was, should the batteries just be sent back to Jacksonville, or did it make more sense to have the drivers go to the Dell Web site and check their batteries against the computer maker's list? The decision was eventually made to have the drivers check the batteries on their own and then follow procedure.

"Then we have to make sure there's a process in place to get those batteries replaced and hope there is not a shortage of replacements. I said it's an inconvenience, but it's not insignificant. Do I tell my people, 'Don't use your laptop until you get a replacement,' when we don't know when that might be?" Thomas adds. "I don't know yet."

"Don't know yet" was also the answer from industry experts pressed to comment on the Dell battery recall. One day after the largest electronics products recall in history, the verdict was still out on what the fallout will be for Dell.

On Monday, Dell announced it would recall the lithium ion batteries, manufactured by Sony Corp., used in Latitude, Inspiron and Dell Precision notebook computers shipped between April 2004 and July 18, 2006. The recall accounts for about 19% of the 22 million notebooks Dell sold during that time period.

Some argued that the recurring Internet image of a flaming Dell laptop -- all over the Web again after Monday's news -- will haunt the Round Rock, Texas-based company long into the future. Others are convinced that Dell's "proactive" approach has already served it well, pointing to the nearly 4% increase in the company's foundering share price by close of day Tuesday.

Most predicted the battery recall will have a bigger impact on Dell's reputation with its consumer customers than with its corporate customers, whom analysts expect to take the recall (and Dell's culpability for it) with more equanimity. It also was near-unanimous that Dell, not battery maker Sony, will bear the brunt of the bad publicity for the problem, if not the cost.

"How long will this be a big story? It depends if more incidents come to light," said analyst Ted Schadler, vice president at Forrester Research Inc., an IT consultancy based in Cambridge, Mass. "If no more computers blow up, the story will disappear without a trace by this time tomorrow."

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Schadler is in the camp that believes Dell's "falling on its sword" for the sake of user safety will ultimately boost its recent efforts to improve customer service and win back the goodwill of its disgruntled consumer market. In his judgment, the Dell recall will ultimately be seen as a "quality control problem for Sony."

"How do you get 4.1 million batteries in the field before you find out there's a problem?" Schadler said.

IDC analyst Richard Shim also believes the recall has an upside for the beleaguered Dell, which recalled 22,000 notebook computer batteries in December, and got beat up in the press after the picture of the exploding laptop at a conference in Osaka, Japan, surfaced on the Internet in June. Shim said Dell has records of who purchased the notebooks and has gotten the message out in a timely fashion that it will replace the batteries.

"Consumers appreciate that approach. I think what they have been able to do is nip this bad string of PR maybe not in the bud, but shortly after the flower bloomed," Shim said.

Dell's announcement is a service to IT departments, Shim said, because it takes away the guesswork. CIOs and IT managers know that battery problems are not uncommon.

"I am not trying to be a booster for Dell," he said. "But what this information gives IT managers and CIOs is a tool that allows them to control what happens with their system."

CIOs at midsize companies, such as Landstar's Thomas, are withholding judgment. Thomas said it would be "premature" to second-guess his contract with Dell. "We would like to see how they partner with us to resolve the issue, and we'll see if they are going to be right there with us in the process. That will definitely minimize the negative impact," he said.

Analyst Steve Kleynhans at Stamford, Conn.-based Gartner Inc., said that even large corporate buyers "will probably take a balanced view of this," and view it as a specific event. "If Dell handles this well, and everything comes together with the right message, I think corporate buyers will shrug it off over time and it will be a forgotten issue a year from now."

He agrees with Dell that this mishap will not have a big impact on the company's bottom line. The $300 million to $400 million estimated to fix the battery problem will be shared (or, according to some reports, borne entirely) by Sony, and in any case can be written off by Dell over several quarters. He fully expects Dell to spend as much or more on marketing over the next few months to shore up its image.

But even with a concerted public relations campaign, Kleynhans was less sanguine about Dell's prospects for winning back consumer confidence. "For them, it's their one machine, and they're really going to think they were put in danger and their house could have burned down. That's hard to get around."

Finally, several industry observers said that no matter what the impact on Dell, the recall will highlight a fundamental problem with today's sleeker, faster laptops: namely, the "recipe for disaster" cooked up by the diminishing size of laptops and the heaping helping of new features installed by hardware manufacturers.

"Optical drives, USB support wireless, Bluetooth, you name it. The new laptops do so much more than a laptop did 10 years ago and yet there is less space to put everything in," said Carmi Levy, an analyst at Info-Tech Research Group Inc. "These are smaller, sleeker, hotter machines that generate more heat because they have less volume to dissipate the heat properly. Combine that with batteries struggling to keep up with all this power requirement, and you have trouble. My only surprise is that it's taken this long to happen."

He said he does not blame Dell or any other manufacturer for the problem, but the consumers who are clamoring for the smaller, sleeker, jam-packed and consequently hotter machines.

"Thermal management needs to become as high a design priority as what features go into the machine, how it looks, how it works and its price," Levy said. And if consumers won't push for it, "It is incumbent on government regulatory agencies to push the industry in that direction by enacting thermal performance standards and ensuring the industry adheres to them."

Let us know what you think about the story; email: Linda Tucci, Senior News Writer

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