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Jeffrey Hutton is a Morningstar contributor.

Hearing implant maker Cochlear (COH) said costs linked to the recall of its newest device were lower than expected, sparking a rally in its shares on Tuesday.

The company reported an after-tax charge of $100.5 million during the six months ended 31 December. That compared with a $130 million to $150 million forecast provided by management at the company's annual general meeting last year.

Since announcing its voluntary recall of its Nucleus CI500 in September last year, worries that more bad news was to come dogged its share price. Defects in the device may take months to discover only when patients - often small children - failed to make progress learning to talk.

Added to the mix was its rival Advanced Bionics, which has emerged from its own hearing implant recall.

That anxiety appears to have been put to rest for now, with Cochlear delivering on a promised 14 per cent increase on its interim dividend for good measure. Its shares, which had lost almost a third of their value in the past year, soared 8 per cent after the result.

"Feedback from Cochlear implant centres suggests volumes and patient choice have been largely unaffected by the N5 recall. We expect modest unit sales growth," said Deutsche Bank analyst David Low ahead of the earnings.

While sales fell 9 per cent during the period to 10,724 units, that total doesn't include 2300 units the company has shipped since the recall last September. The units weren't included because they were offset against credit notes issued for the return of un-implanted CI500 components.

Cochlear swung to a first-half loss of $20.4 million from a year-earlier net profit of $87.2 million.

Deutsche's Low had expected a loss of about $30 million. The company raised its interim dividend to $1.20. The distribution is 60 per cent franked.

As of 31 January 2012, the overall failure rate of Nucleus CI500 devices was 2.4 per cent. The failure rate has fallen every month since October, the company said.

"It was a challenging first half, particularly given we recalled one of the components of our Cochlear implant system," chief executive Chris Roberts said in a statement.

"While the $20 million loss was disappointing, the recall costs have been quarantined, and importantly, a record number of recipients received a Cochlear implant in the first half."

Cochlear said in a statement it will be able to make enough of its older model implants to keep pace with scheduled surgeries.

Even so, not everyone is convinced. In a research note published on 3 February, UBS analyst Andrew Goodsall said Cochlear's failure rate may grow further.

"The key issue around elevated failure rate is ongoing concerns among existing recipients, where a device hasn't failed but may have potential to," Goodsall said in the report.

"Revision surgeries (may) weigh on clinics and patient brand selection."

Still, sales results suggest the company has suffered little damage to its brand, RBS analyst Derek Jellinek said.

The company ought to be able ramp up production of its older Freedom models, he said.

"We continue to see long-term reputational damage as minimal," Jellinek said.

"Operational risk around crossing over production to the older Freedom implant (has been) largely averted given weekly implant production levels are above pre-recall levels as of December."