Apple shares slide as iPhone 4 concerns grow

LOS ANGELES/SAN FRANCISCO Tue Jul 13, 2010 3:05pm EDT

A customer looks at an iPhone 4 at the Apple Store 5th Avenue in New York, in this June 24, 2010 file photo. REUTERS/Eric Thayer/Files

A customer looks at an iPhone 4 at the Apple Store 5th Avenue in New York, in this June 24, 2010 file photo.

Credit: Reuters/Eric Thayer/Files

LOS ANGELES/SAN FRANCISCO (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 about a product recall.

Analysts thought a recall unlikely but said the world's most valuable tech company needs need to move quickly to avert longer-term damage to its widely respected brand, which allows it to charge a premium for products like the iPad and iPod. The stock should recover on Wednesday, some said.

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. But some spotted a buying opportunity as Apple's stock bounces off Tuesday's low.

"There's nothing to recall. There's people lining up in droves to buy this phone," said Gleacher & Co analyst Brian Marshall. He said he could not replicate the antenna problem on the iPhone 4.

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 2 percent lower at $252.19 Tuesday afternoon, as the Nasdaq gained 1.7 percent.

Shares of Research in Motion, which makes the rival Blackberry, climbed 3.4 percent to $55.62. Google Inc, whose Android operating system for smartphones is gaining traction on multiple devices, also rose, by more than 3 percent to $490.35, along with tech stocks overall.

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 Motorola Inc's Droid 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 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 contract 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 are weighing on their shares," said Frederic Ruffy, options strategists at Web information site WhatsTrading.com.

(Reporting by Carolina Madrid in Los Angeles and Gabriel Madway in San Francisco; Additional reporting by Doris Frankel in Chicago; Writing by Edwin Chan; Editing by Matthew Lewis, Richard Chang and John Wallace)

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (22)
Dahc wrote:
After taking the money of some 1.7 million buyers, Apple needs to replace the phone for free to all purchasers or refund them as a sign of goodwill to their long-standing fan base. Personally i don’t see it as a software glitch or fix, but hardware. Replace the phones or tuck tail in between legs and humbly thyself and refund customers.

Jul 13, 2010 1:28pm EDT  --  Report as abuse
wan2buytools wrote:
“…after a poor review for its iPhone 4 from an influential consumer guide…”

Poor review? Consumer Reports gave it the highest rating of any smart phone it has reviewed, including the iPhone 3. It just didn’t get the bonus Recommended rating. This is the type of click-bait, sloppy journalism that is feeding the mob mentality. I expect better from Reuters.

Jul 13, 2010 1:59pm EDT  --  Report as abuse
The air is thick with smoke! I’m amazed that Apple shareholders are not running to the exits to preserve their wealth before the shares return to under $20 per share… where they were a few years ago if you do some research into Apple’s historical performance.

Jul 13, 2010 2:34pm EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.