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Is Apple Getting Ready for a Full Recall of the iPhone 4?

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Apparently, Apple (s aapl) is hosting a press conference tomorrow. It doesn’t take much imagination to guess what it is about — the iPhone 4 and its antenna problems. And from the looks for it, the company is likely to say that the company has figured out a fix for the problems, or something to that effect. Whether the company will issue an official recall or simply provide free bumpers to iPhone 4 customers remains to be seen.

The timing of the press conference reflects the fact that the company is hosting its earnings call on Tuesday and it makes sense for it to deal with the antenna issue prior to that call. In a note to his clients this morning, Rodman & Renshaw analyst Ashok Kumar wrote:

Our supply chain checks reveal that Apple has instituted a design fix for the iPhone 4 that more adequately insulates the transceiver module. Apple is also likely to offer the bumper, gratis, as an intermediary solution. It is unclear if Apple will announce an official recall.

Offering a free bumper seems common sense to us. Another point to note — AT&T’s replacement policies allow you to return a phone within 30 days of buying it. I suspect Apple and AT&T are going to waive the restocking fee in this case. I am not sure how many people remember this, but Apple’s antenna problems are reminiscent of Intel’s troubles in the early 1990s with an errant floating point bug in some Pentium chips. The story first gained traction in the chip industry trade press and later was picked up by mainstream media, which led to Intel offering to replace the chips. Only a few owners stepped up to replace them, but the affair cost Intel (s intc) close to $475 million.

The same is happening now to Apple. The iPhone 4 related problems were first reported in trade press but lately have been picked up by Consumer Reports, David Letterman and USA Today, prompting the company to take action. In theory, Apple may end up with a much heftier bill on its hands, since each device costs an estimated $187.51 in parts. Regardless of the total cost, Apple is right in addressing this problem, as it would remove any speed bumps in the way of iPhone sales.

Apple, according to Kumar’s estimates, should end the June 2010 quarter having sold about eight million phones, shy of his nine million device estimate, thanks to supply constraints. According to his numbers, the company may have sold about 3.2 million iPads during the quarter, roughly in line with Apple’s own estimates.

We expect Apple to report June quarter revenues that are in line or modestly above guidance levels of $13.0-$13.4 billion … Shortfall in sales of iPods will also constrain the financial results. Apple guided for margins of 36%, versus 39% in March, and we expect profitability to have a near term negative bias from new product releases.

10 Responses to “Is Apple Getting Ready for a Full Recall of the iPhone 4?”

  1. The great thing about this is we’ll all find out tomorrow what Apple has planned.

    As for cost, CNET has estimated a full recall would cost Apple approximately 3% to 4% of cash on hand. Relatively speaking, a recall would be a blip on Apple’s books.

    At this point it’s clear that the iPhone 4 suffers from a design flaw and that Apple knew about it prior to the device shipping. Bumpers, duct-tape (Consume Reports), etc., will rectify the issue, but for those that feel they purchased a defective device, those band-aids transform the phone into something they didn’t sign-up for.

    At this point Apple is obviously working a modified version of the iPhone 4 that will not suffer the antenna issue. The best thing Apple could do tomorrow is tell the world that when it’s available, existing iPhone 4 owners will be able to swap their old units for the new phone if they wish. Until then a little duct-tape couldn’t hurt…

  2. worldbfree4me

    @Tim Nash
    That statement is an arrogant one and one that is not acceptable for a large Corporation such as Apple. Imagine checking into the Bob Hope suite at the Bellagio Hotel and for whatever reason you find the sheets to be too coarse or the bed to be too firm for your taste. So, you call down to the desk and they tell you, “If you are not happy, you can just check out now and not be charged.”
    Rule #1 The customer is always right
    Rule #2 if there is a conflict, refer to rule #1

  3. ‘I suspect Apple and AT&T are going to waive the restocking fee in this case.’

    From Apple’s July 2 release
    ‘As a reminder, if you are not fully satisfied, you can return your undamaged iPhone to any Apple Retail Store or the online Apple Store within 30 days of purchase for a full refund.’

  4. Reality is outpacing the Draconian Apple PR machine.

    If Bloomberg report is true, and Apple knowingly sold defect product to Consumers, no press conference or recall will alter the criminal court case they are on a trajectory for.

    FTC has a clear definition of “Unethical or unscrupulous conduct” prosecution of which cannot be dodged by a public company’s officers and management.

      • Our collective geek opinion of the product’s technical merits are totally irrelevant. Its a matter of ethics.

        Case would be totally focused on human behavior, the actual device would never even be entered as evidence.

        Was Mr. Jobs told of the defect, yes or no?
        If yes, did Mr. Jobs intentionally take no action to correct the defect and release the product for sale to Consumers, yes or no?
        If yes, reference the fiduciary duty language in his employment contract.

      • A little more objectivity

        wow, talk about an Apple fanboy. “Superior” in this case is a very subjective term, and there are plenty of knowledgeable people out there that could easily argue the inferiority of this device (but marketing trumps knowledge any day). Of course, it all depends on the perspective taken (if all you’re looking at is sales, ease of hacking, the number of fanatics, and simplicity (a.k.a. the restrictiveness of the device and ecosystem), then yes, the iPhone is superior. If you’re looking at true innovation, open ecosystems, pro-consumer, hardware performance, system functionality (like proper multi-tasking, cloud-synchronization, etc) then the iPhone is inferior and in fact playing catch-up in many regards. This device (and the new one is no different) is mostly a copy of features many other platforms already had/have. The original device’s main “innovation” was in the usability/design (which in all fairness was a huge thing), and the new device’s “innovation” is facetime (and Nokia has been doing 2-way video for a long time)… that’s it. One would be hard pressed to find features that didn’t already exist in a BlackBerry, Symbian, Palm/WebOS, or Android phone (but due to marketing and fanatics, these other platforms don’t get any such credit).

  5. Om, I don’t know about a full recall but I now believe Apple will offer any customer a replacement model. I happened to write on my site (ahem) that Apple has dropped about $10 billion in market cap this week.

    It’s a major screw-up, but very smart that they are (likely) to act so fast to end this.