After Consumer Reports said it would not recommend the iPhone 4 because of its reception problems this week, some experts believe that Apple may be forced to recall the device. If it does, the recall could cost Apple $1.5 billion.
Bernstein Research analyst Toni Sacconaghi said that a full product recall is unlikely. But he said the cost of getting the phones back, fixing the hardware problem and issuing new phones would cost 3.5 percent of Apple’s cash hoard. Is it worth it? Apple has to decide how much it values its own reputation. Yesterday, the Consumer Reports review knocked Apple’s stock price down 3 percent, but it has risen 1.41 percent to $255.34 today.
Alternatively, Apple could give away a free rubber bumper case to each person who buys a phone. The bumper cases prevent a person’s hand from coming in contact with the phone’s antenna, which is build into the metal siding on the phone. And that would likely fix the reception problem,which results in dropped calls when the phone is held a certain way. While Apple charges $29 at retail for the cases, Sacconaghi estimates it costs Apple a dollar to make them.
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Gene Munster, an analyst at Piper Jaffray, estimated the cost of issuing rubber bumpers would be $178.5 million — a far cheaper option.
That kind of solution would be financially immaterial, Sacconaghi wrote. “We believe that consumers are increasingly aware of the antenna issue, and remedying it rather than dismissing or ignoring it appears most appropriate,” he added.
Other analysts have said they believe the awareness of the reception problem is hurting demand. Perhaps the greatest indignity for Apple came today as Kevin Turner, chief operating officer at Microsoft, said in a speech, “It looks like the iPhone 4 might be their Vista, and I’m okay with that.”
Sacconaghi said that a long-term concern for Apple investors is the company’s “hubris” in dealing with competitors and regulators, which could also affect the attitudes of its customers over time. The examples of this include Apple’s limited disclosure of Steve Jobs’ health issues, its quarrel with Adobe over Flash, its investigation into the lost iPhone prototype, restrictions on app development, and its failure to acknowledge the iPhone 4 problems. Clearly, Sacconaghi is ticked off about Apple and has a long memory. So far, Apple has only offered a software update to give users the proper number of signal bars on their phone.
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