Japan's No. 2 telecoms carrier, KDDI Corp, said yesterday it would recall 560,000 mobile phones built by Sony Corp, in the latest sign of the increasing complexity of Japan's Internet-capable handsets.
The recall of the phones, sold under KDDI's wireless unit "au" brand [pronounced ay-you] and by subsidiary Okinawa Cellular Telephone Co, is the largest in Japan this year and would replace the handset's battery pack.
Earlier this year, software glitches struck two advanced phone models built by Sony and by Matsushita Communication Industrial Co Ltd (MCI) under the Panasonic brand for top mobile operator NTT DoCoMo Inc.
DoCoMo recalled 230,000 Panasonic P503i phones in February and 420,000 Sony SO503i phones in May. In addition, KDDI recalled 126,000 of another Sony model, the C101S, in May.
Software for mobile phones in Japan is becoming increasingly complicated because many connect to the Internet. While the latest recall does not involve software, it highlights the pressures that Japan's intensely competitive telecoms market, the world's second largest, is putting on carriers and their vendors.
Sony spokesman Shusuke Kanai said the problem in the folding C406S phone mainly concerned a design flaw in the battery's circuitry made by a Sony affiliate rather than the battery cell itself, which was made by a third-party vendor.
Analysts said this would minimize the financial impact of the recall, since it does not involve replacing the phone outright or rewriting the software that makes it run.
"The impact of the recall on earnings is insignificant for Sony. Plus, it's just the battery and not the software," said Hideki Watanabe, electronics analyst at HSBC Securities.
Sony said it had not yet estimated the cost of the recall, which is usually shouldered by the handset manufacturer. Shinko Securities electronics analyst Toshiya Tsuchikawa estimated it would cost Sony ?3 billion (US$24 million), a tiny fraction of its profit.
Sony said in May it would step up quality control of its mobile phone handsets so as to prevent further recalls.
"It's too bad. They are putting out very appealing consumer products," said Mark Berman, telecoms analyst at Credit Suisse First Boston.
"It points to the difficulties associated with the complexity of the mobile phones. It's definitely yet another setback for Sony's handset business."
The latest phone to be recalled had been sold since the beginning of this year and put the total number of Sony phones under recall this year at more than 1.1 million. It features a color screen and was one of KDDI's most popular models.
Japan's wireless carriers are scrambling to grab market share as users increasingly migrate toward Net-enabled mobile phone services, which allow them to browse the Web and access e-mail, news, and information via credit card-sized screens.
At the last count, KDDI had 7.6 million users browsing the Web on its EZweb phones while DoCoMo had more than 25 million for its i-mode wireless Internet service. Third-place Japan Telecom Co Ltd's J-phone wireless unit had 7.04 million users for its J-sky mobile Web access service.
Japan's wireless operators work closely with their vendors to develop and sell new products. Matsushita Communications does so with DoCoMo and is Japan's number one cell phone maker.
Sony, a relative newcomer to the market, may have more to lose because of the three recalls this year.
"The relationship with carriers -- which is very important -- is likely to take a slight blow here," said HSBC's Watanabe.
CSFB's Berman said Sony's recent tie-up with Swedish electronics giant Ericsson could prove to be key for a more reliable cell phone product line.
"The tie-up with Ericsson brings a lot of engineering skill. Ericsson has great engineers and software people and Sony has the marketing know-how," Berman said.
KDDI shares took a hit and closed 2.15 percent lower at Y545,000, erasing gains made the previous day. Sony shares were down 2.26 percent at ?7,800, underperforming the tech-heavy Nikkei 225 average, which fell 1.47 percent.
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