Dell Computer, Inc. announced Monday that it would delay filing its Form 10-Q for the second quarter because of questions raised in a previously announced informal inquiry by the Securities and Exchange Commission (SEC) into accounting and reporting matters from 2005. The company also announced that the U.S. Attorney for New York had subpoenaed documents related to the company’s financial reporting from 2002 to the present.
The announcement added one more dent to the company’s image, recently battered by the recall of 4.1 million lithium-ion notebook batteries with cells manufactured by Sony, that may have the potential for overheating. No alternative is currently available for the lithium-ion batteries, long considered low-risk (the Dell batteries suffered from a manufacturing fault), but which have also raised red flags for overheating in cell phones, Reuters reports. Alternative technologies may not be available for five to ten years.
Michael Dell, founder and chairman of Dell, said that he shared responsibility with Kevin Rollins, the chief executive, for the company’s current problems, according to the New York Times. Speaking at a technology conference in New York on Tuesday he said, “I think characterizations of the company’s challenges as being only of Kevin’s doing are inaccurate. Kevin and I run the business together. So if you want to blame someone, you can blame me too.”
The company said that it was conducting an internal review with the Audit Committee and their independent auditors, PricewaterhouseCoopers (PwC), to determine if any restatements of prior period financial reports will be necessary. The SEC and internal investigations have found issues relating to accruals, reserves and other balance sheet items.
“We have not yet reached any conclusion on materiality as to these issues,” said Don Carty, chairman of the Audit Committee. “We are continuing to investigate the matter fully.”
If Dell cannot complete its filing within six months, the company will be delisted from the Nasdaq stock market. Mr. Dell said that he expected the company would resolve its accounting issues before then, the Times says.
Sony is replacing the batteries that Dell has recalled, but questions have arisen about the potential for ongoing problems. Lithium-ion batteries suffer from “particle fatigue” when recharged too frequently, Reuters says, but notebooks such as those sold by Dell for general consumer use, are now being asked to power video conferencing, hosting websites and interactive games, all tasks that demand a lot of energy. Battery technology is also being asked to provide energy for consumer access to films and television through hand held computers or mobile phones.
Public battery issues, such as those experienced by Dell and Apple, should be a red flag for the industry, says Robert Lifton, chairman and CEO of Medis Technologies, according to wirelessweek.com. “It is an unfortunate byproduct of pushing the envelope of battery performance to meet the ever-increasing demands from mobile devices,” he says.
Power sources that can easily support these activities could still be ten years away, Reuters reports. Matsushita Electric Industrial Co. Ltd and Toshiba Corp., among others, are working to develop fuel cells which produce electricity from an external supply of fuel, as opposed to a battery’s internal storage capacity.
“There is nothing in the near term that can satisfy all the requirements that have to come from a battery. It has to be light, small, last a long time and relatively safe,” said NPD Group analyst Stephen Baker, Reuters reports. “They haven’t come up with a chemical combination yet that can satisfy all those requirements.”