Talk of iPhone 4 Recall that Could Cost Apple $1.5 Billion

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Cries for a recall of the iPhone 4 on popular websites is the latest headache for Apple as the blogosphere lit up Tuesday demanding a more proactive response from Apple to the antenna problems in its latest phone.

Some industry blogs such as CNET suggested Apple recall the iPhone 4, which quickly resounded through Wall Street, sending Apple’s stock down 4 percent Tuesday and causing about a half dozen research analysts to rush out notes to their clients.

CNET editor Molly Wood appeared on CNN this morning explaining her suggestion for a recall, which would cost Apple about $1.5 or 3.5 percent of its total cash on hand, said CNET quoting a Bernstein analyst. Wood explained the iPhone 4 is suffering from both a software and hardware reception problem. First, it doesn’t show the correct number of bars indicating the proper signal strength and Apple has promised to fix this. Secondly, its antenna loses reception when the phone is gripped a certain way and Apple’s CEO Steve Jobs told users to simply hold the phone differently or purchase a case (which many phone owners purchase anyway). Part of the uproar in the media is a result of what many consider Jobs’ arrogant response to the issue, Wood said.

While a recall may be overkill, she said Apple should be proactive in protecting its reputation for quality products. Short of a full recall, which analysts called unlikely, Apple “should announce some sort of repair program.”

The first whisper of a recall sent Wall Street analysts scrambling to respond. Reuters quoted several analysts who said a recall would be overkill, but it could impact demand for the iPhone 4.

“They need to provide an actual fix — not a bumper fix — so that the product performs as it should,” Ashok Kumar of Rodman & Renshaw told the news agency. “Apple should have taken a higher road when addressing the design flaw, instead of taking the hard-line stance that they did.” (A “bumper” refers to an iPhone case).

JP Morgan warned that reports of antenna problems may eventually affect demand. Analyst Mark Moskowitz said in a client note, “Concerns around iPhone 4 reception do not appear to be impacting demand, but we think there are risks when a well-respected product rating agency such as Consumer Reports issues an unfavorable report.”

Apple has been sued by iPhone customers in at least three complaints related to antenna problems.

All this followed a Consumer Reports blog Monday stating the organization could no longer recommend the iPhone 4 because of its reception problems. It should be noted that the article said without the antenna problem, the iPhone 4 would outscore its competitors.

Our take: Apple should send out free cases (bumpers) to iPhone 4 owners and give them away with the phone. And of course, they should quickly fix the hardware issue.

Source: Reuters , CNET, CNN

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