Dell, HP confronting laptop battery shortage

Dell said on Tuesday the PC industry was experiencing a shortage of laptop batteries partly because of a recent fire at a major supplier, but the company was working with other suppliers to limit any price increases.

Dell, the world's second-largest PC maker after Hewlett-Packard, also said prices of its separately sold batteries used as replacements or for surplus power had gone up because of the shortage caused partly by the March 3 fire at LG Chem's Ochang plant.

LG Chem is the second biggest South Korean battery maker. The fire contributed to a worldwide battery shortage that could affect up to 40 percent of second-quarter shipments at Asustek Computer, Taiwan's No. 2 PC maker, an Asustek executive told Reuters earlier on Tuesday.

A spokesman for Round Rock, Texas-based Dell declined to give the percentage of total Dell sales attributable to separately sold battery packs, but the amount is likely to be minimal as Dell's main products are fully assembled desktop and laptop PCs and business server computers.

"We sell battery packs. The prices of those battery packs for people ordering extra batteries have gone up," Dell spokesman Jess Blackburn said, declining to say by how much.

He added that Dell is "not commenting on what impact, if any, that this is having on the prices of our products," referring to notebook PCs.

"The industry is experiencing battery supply constraints because of these problems," Blackburn added. "Therefore, pricing is being impacted by current availability. But we are working with our partners throughout our supply chain to reduce the impact on our customers."

LG Chem competes in the notebook battery business with Samsung SDI and Sony, among others. LG Chem has said it expected the Ochang plant to start production again in two to three months.

HP spokesman Mike Hockey said the company is in "regular communication" with LG Chem about the situation.

"The full extent of the impact to HP and other OEMs (original equipment manufacturers) is still being determined," Hockey said in an e-mailed statement. "We are aggressively working within the battery cell industry to secure additional supply of battery cells."

Macquarie Securities analyst Daniel Chang said first-quarter notebook battery supply was already constrained and that the fire had driven PC makers to other makers including Sony and Panasonic.

Notebook PCs accounted for 30 percent of revenue in Dell's most recently completed quarter, the same as desktop PCs. Software and peripherals, which include battery packs, made up 17 percent.

Memory prices
PC makers may be able to offset the rising cost of batteries with other components such as PC memory whose prices have been falling.

Citigroup analyst Glen Yeung wrote in a February 29 report that Dell had likely built up memory inventory in its fiscal fourth quarter ended February 1, before the fire.

"Our checks suggest Dell did build DRAM (computer memory) inventories in their fiscal fourth quarter in response to low DRAM pricing," Yeung wrote. "Despite commentary from industry players, we suspect downward pricing will persist in March."

Analysts attributed an increase in Dell's fourth-quarter operating margin to lower prices for components including memory, which fell 40 percent to 45 percent from the fiscal third quarter, according to Citigroup analysts.

Story Copyright © 2008 Reuters Limited. All rights reserved.

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