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How the Overstated iPhone 4 Crisis forced Apple to Give away Free Bumpers

|Includes:Apple Inc. (AAPL), AMZN, BBRY, BIDU, CSCO, DELL, DIA, GOOG, HPQ, IBM, INTC, MSFT, NOK, QQQ, SPY, WMT

During the Apple (NASDAQ:AAPL) press conference on Friday, CEO Steve Jobs made several very interesting observations about the iPhone 4 antenna crisis that I remember reading about in passing when the problem first surfaced. That nearly every smart phone in the market today, including the Blackberry Bold and HTC Droid Eris, can lose its signal if handled in certain ways. That if the phone already has a weak signal, improper handling can push that weak signal over the precipice and lead to a dropped call.

So the question I have is if smart phones generally do in fact exhibit similar signal problems as Steve Jobs and others have suggested, then why is Apple being singled out for a seemingly ubiquitous issue exhibited in several other smart phones? More importantly, why has Apple agreed to give away free bumpers when this seems to be more of an industry-wide problem and not just an iPhone 4 problem?

Shouldn’t other smart phone makers such as Research in Motion (RIMM), Google (NASDAQ:GOOG) and Nokia (NYSE:NOK) be equally criticized and equally required to give away free cases? It seems to me that Apple was forced to give away free bumpers due to negative public opinion suggesting that this reception problem is a design flaw specific to Apple. That the free bumper solution was in essence the cost of negative public relations, and more importantly the cost to alter that negative perception. It also doesn’t help that Consumer Reports in one week, passes the iPhone with flying colors and then flip-flops the next week by essentially flunking the iPhone.

Yet, Apple by its own actions isn’t entirely innocent either. Steve Jobs conceded that the reason this whole problem even surfaced to begin with is because of how the iPhone would drop calls from the false appearance of full bars on the phone. That because of some flawed software algorithm, the iPhone 4 displayed more bars than the phone actually had. So when the average consumer would see their iPhone 4 go from full bars to dropped calls, complaints about a design flaw in the antenna logically followed. Apple, for its part, fixed this particular problem with the iPhone 4.0.1 patch released on Thursday evening.

Jobs also suggests that another reason this problem became front and center in the media was due to the iPhone 4 dropping slightly more calls than the iPhone 3GS. That because the iPhone 3GS had a similar design as the iPhone 3G, many people just used their old 3G cases on their new 3GS phones. This supposedly caused the iPhone 3GS to collectively drop less calls per 100 than the iPhone 4 at launch. So the idea here is because more people had cases on their iPhone 3GS, than they currently do on their iPhone 4, the problem became more apparent.

It seems to me that Apple really stands by this idea that the iPhone reception problem seems to be more of an industry wide problem, and far more overstated than suggested by the media. Steve Jobs also announced that Apple has already sold 3 million iPhone 4s since launch – that’s a million per week run rate or 12 million in Q4.

Jobs also noted that not more than one-half of one percent of complaints to Apple Customer Care concerns the iPhone 4 antenna problem and that in fact, it has received thousands of emails from customers indicating that they have no reception issues. I personally have an iPhone 4 without a bumper and have yet to drop a call. Then again, I don’t live in an area with a weak signal and I’m just one person. If Apple is in fact right that this seems to be a smart phone problem, and not just an iPhone 4 problem, then I can understand Steve Jobs’ frustration today. Then again, I have to ask myself: When is the last time the media has ever blown anything out of proportion?

Disclosure: At the time of this writing, the author holds no position in the equity markets.  However, the author recently exited a short position he assumed at the close yesterday on the QQQQ (August $44 puts). 
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