Sony will lose at least $560m from its predicted earnings this year as it pays for huge battery recalls and a price cut for its PlayStation 3 games console, analysts believe. 

The company has also been hit by allegations that it knew its notebook PC batteries could catch fire a year ago, but failed to understand the magnitude of the problem.

The mounting cost of problems with notebook batteries and the PlayStation 3 will cut Sony's expected $1.1bn profits in half this year.

This figure could rise further, according to industry analysts, particularly if PC vendors or consumers take legal action against Sony. Five major notebook vendors have so far announced battery recalls.

"These issues raise questions about the positioning of rechargeable battery operations, which have no part in Sony's vertically integrated model, and of the Cell processor, which is supposed to be a core part of the structure," said Nomura Securities analyst Eiichi Katayama. 

A global recall of some 10 million lithium ion notebook PC batteries is likely to cost Sony almost $340m, even assuming that the company avoids expensive legal action related to the issue, Nomura estimates.

In addition, a decision to slash the price of the PlayStation 3 in Sony's strong home market will cost a total of $220m, the analyst predicts.

In a further shock to Sony, a Japanese newspaper has alleged that the company knew almost a year ago that its batteries could catch fire, but failed to appreciate the seriousness of the problem.

Sony first became aware of the battery problem in December 2005, when a Dell notebook caught fire in Japan, the Daily Yomiuri reported, citing unnamed Dell and Sony representatives.