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29 March 2024

Apple shares slide as iPhone 4 concerns grow

Apple was uncharacteristically forthright about an embarrassing software glitch that overstates network signal strength in its iPhone. (AP)

Published
By Reuters

Shares of Apple Inc slid more than 4 percent on Tuesday after a poor review for its iPhone 4 from an influential consumer guide underpinned mounting complaints about the hot-selling device's reception and spurred speculation of a product recall.

Consumer Reports said on Monday it could not recommend the iPhone 4 - which sold 1.7 million units worldwide in its first three days - after its tests confirmed concerns about signal loss when the device is held in a certain way.

That report spurred widespread discussion on Tuesday, including on popular tech site Cnet and multiple blogs, about the possibility of an iPhone 4 recall: an unheard-of event for a company lauded by investors and tech aficionados for its marketing savvy and product quality.

Apple, which has called the iPhone 4's June debut its most successful product launch ever, has not responded to the widely watched nonprofit organization's report or to the recall talk.

The company has said all cellphones suffer some signal loss when cradled in different ways, and suggested that a software glitch might have misled users by overstating signal strength.

Hudson Square Research analyst Daniel Ernst pointed to speculation that Consumer Reports' article might induce a recall.

Apple shares dipped below their 50-day moving average price of $256.26, sliding as much as 4.2 percent to $246.43. They pared losses to trade 3 percent lower at $249.53 early Tuesday afternoon, as the Nasdaq gained 1.37 percent.

Shares of Research in Motion, which makes the rival Blackberry, climbed 2.7 percent to $57.42. Google Inc, whose Android operating system for smartphones is gaining traction on multiple devices, also rose, by more than 3 percent to $491.82, along with tech stocks overall on Tuesday.

Analysts said Apple needs to take quick action to avert any lasting damage to its reputation for quality products -- an image honed by iconic gadgets such as the iPod and iPad - though they did not see sales being hurt for now.

"They need to provide an actual fix - not a bumper fix - so that the product performs as it should," said Ashok Kumar at Rodman & Renshaw. "Apple should have taken a higher road when addressing the design flaw, instead of taking the hard-line stance that they did."

"This is not a Toyota problem, but it is a problem that Apple needs to address head-on," he said, referring to the Japanese automaker's global recalls of more than 10 million vehicles since late last year.

NEED TO TAKE ACTION

JP Morgan warned that reports of wireless reception problems on the smartphone, which competes with Research in Motion's Blackberry and Palm Inc's Pre, may eventually affect demand.

"Consumer Reports is a well-respected product reviewer, and the report should turn up the heat on Apple," 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.

"We continue to expect a fix from Apple, whether the solution is software - or hardware-related."

Consumer Reports, which publishes guides on everything from cars to TVs, said in its Monday report that it had also tested other phones - including the iPhone 3GS and Pre - and found none had the signal-loss problems of Apple's latest iPhone.

It added that AT& T Inc, the exclusive mobile phone carrier for the iPhone 4 and whose network is often blamed for reception problems, was not necessarily the main culprit.

The report was the latest blow to the iPhone 4, which has been plagued by complaints about poor reception. Many of the complaints involve a wraparound antenna whose signal strength is said to be affected if the device is touched in a certain way.

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

Heavy options trading activity on Tuesday ahead of Friday's July tract expiration suggested investors were bracing for possible Apple news before the weekend, analysts say.

"Apple shares are down on concerns about a possible defect with the new iPhone 4. Worries that iPhone 4 might be a lemon is weighing on their shares," said Frederic Ruffy, options strategists at Web information site WhatsTrading.com.